Amid the rapid rise of private credit and its accompanying risks, the asset manager is advocating for a quantitative, data-driven approach to corporate credit exposure.
As private credit’s popularity continues to climb in Australia – up 9 per cent over the past year – Acadian Asset Management is urging investors to take a closer look at the risks of the asset class and consider rebalancing towards public credit.
Speaking to InvestorDaily, Scott Richardson, head of systematic credit, argued for the merits of a systematic credit approach – a lesser-known but emerging way to access corporate credit markets.
As Richardson explained, systematic credit is an active risk, data-driven approach to corporate credit whereby managers identify mispriced securities and construct portfolios entirely from fundamental data.
“You’re removing behavioural biases and passion from the process and building it upstream with your fundamental data inputs, then having a systematic production function to generate a trade list, which ultimately gives you a portfolio,” he said.
The strategy contrasts with a traditional discretionary approach, which accounts for roughly 98 per cent of actively managed credit and relies on managers applying their judgment and expertise throughout the investment process.
While Richardson clarified that systematic credit still requires discretion and a “human touch”, he argued that its key strength is in building diversified, balanced portfolios across factors such as spread, rating, country, and currency – all with lower correlations to macroeconomic sources of risk.
By comparison, he said that a traditional discretionary approach makes it harder to achieve this level of systematic balance.
“They’re not building their portfolios laser guiding their exposure to idiosyncratic return opportunities,” he said.
Richardson has headed up systematic credit at Acadian since 2022, when the firm began to deepen its focus on the area driven by shifting bond market dynamics.
At the time, the rise of electronic bond trading and better data availability saw systematic credit become increasingly viable and experienced increased client demand.
Since then, the strategy has continued to gain momentum, with alternative asset manager Ares acquiring London-based systematic fixed income manager BlueCove in October, and Man Group tripling the assets in its systematic credit business.
Although the area only represents around 2 per cent of credit market strategies, Richardson argued that its relatively short history of just over two decades leaves plenty of room for growth.
“As only a small slice of the pie, [systematic credit] represents a massive growing opportunity,” he told this publication.
Private credit concerns
His comments also come on the heels of the corporate watchdog’s long-awaited surveillance review of 28 private credit funds, which raised fresh concerns around valuations, liquidity, and disclosure.
Referencing the report, Richardson warned that private credit does show troubling signs, posing not just cyclical but structural risks. He highlighted several due diligence areas that he believes warrant close attention.
First, Richardson noted that the rapid growth of an asset class that barely existed 15 to 20 years ago naturally leads to diminishing marginal returns. As well as this, he argued that reported returns often obscure fees and volatility, and that pricing in the asset class remains opaque.
“This is a huge problem, particularly for the retail audience that might not fully appreciate if you see a price, there’s a massive confidence interval around whatever reported price is for a private security because they’re not traded on a secondary exchange,” he explained.
Richardson also warned of the risks from defaults in private credit that are misunderstood, repackaged under different labels, or reported in ways that can be misleading.
Finally, while private credit is often seen as a hedge against rising rates, he argued this only holds if borrowers can handle higher debt – something many highly leveraged, lower-quality borrowers may struggle with.
At the same time, he acknowledged private credit remains a “useful” diversification tool, stressing not to cut exposure entirely but to “temper enthusiasm” and be mindful of the risks.
For these reasons, Acadian supports rebalancing toward public credit markets, highlighting systematic credit as a particularly compelling segment.
Despite this, like any active risk strategy, Richardson acknowledged that systematic investing is not foolproof and can fail.
“If you’re doing security selection, there’s always a risk that you might be wrong – the market might know more than you do,” he said.
He also noted that growth risk is always a factor in credit portfolios: “If there’s a big negative shock to growth, economies in downturn, it will be harder for those companies to generate free cash flows to service said debt.”
He concluded that, despite the risks, the ability to achieve systematic balance makes systematic credit a compelling strategy with significant growth potential.
“The bottom line is: it works.”
