Private credit has moved from the margins to the mainstream of sophisticated portfolio construction — and few investors are better placed than Toby Watson to explain why.
A decade ago, private credit was largely the preserve of specialist funds and institutional investors with access to niche strategies. Today, it has become a meaningful component of diversified portfolios across the wealth management spectrum. Yet the growth of the asset class has also brought new risks and complexities that are not always well understood. Toby Watson, whose career at Goldman Sachs International included senior roles in structured credit and hard asset lending, brings a level of analytical depth to this discussion that goes well beyond the surface-level enthusiasm that has characterised much of the recent commentary.
Private credit has emerged as one of the most significant structural developments in asset management over the past decade — driven partly by regulatory changes that reduced traditional bank lending activity and partly by the search for yield in a prolonged low-rate environment. Toby Watson, a partner at Rampart Capital, has followed this evolution closely and brings a well-grounded perspective shaped by direct experience in credit markets at the highest institutional level. His career in structured credit and principal funding gives him both the technical knowledge to assess private credit strategies rigorously and the market experience to understand how they behave when conditions deteriorate.
Why Private Credit Has Grown So Quickly
The expansion of private credit as an asset class is not simply a product of investor demand — it reflects a genuine structural shift in how credit is intermediated in the modern economy. Toby Watson has observed this shift from close quarters, having worked at the intersection of bank lending and capital markets for much of his career. In the years following the 2008 financial crisis, tighter bank capital requirements and more stringent regulatory frameworks reduced the willingness of traditional lenders to extend credit to certain borrowers and in certain structures. The gap that opened up created opportunity for non-bank lenders — private credit funds, direct lending vehicles and structured credit platforms — to step in.
This structural shift has proven durable. The retreat of banks from segments of the lending market has not reversed as regulation has evolved; if anything, it has deepened. The result is a private credit market that is considerably larger, more diverse and more institutionally sophisticated than it was even a decade ago.
For investors, this matters because it has created a genuinely new set of return opportunities that were not previously accessible outside the largest institutional platforms. Direct lending to mid-market companies, real estate debt, infrastructure debt and asset-backed lending all offer return characteristics that are distinct from those available in public bond markets. Toby Watson points to the illiquidity premium as one of the more compelling features — but stresses that accessing it responsibly requires a level of credit expertise that not all market participants possess.
What makes private credit attractive as a portfolio component?
Private credit can offer several characteristics that complement a conventional fixed income allocation — including higher yields, floating rate structures that provide some protection against rising interest rates, and return streams that are less correlated with public market volatility. Toby Watson’s direct experience in structured credit and hard asset lending at Goldman Sachs International gives him a precise understanding of both the genuine attractions of private credit and the risks that are sometimes underappreciated by investors encountering the asset class for the first time.
Toby Watson on the Risks That Deserve More Attention
The growth of private credit has been accompanied, in some quarters, by a degree of enthusiasm that Toby Watson views with measured caution. The asset class has performed well in a relatively benign credit environment — but the full credit cycle has not yet been fully tested for many of the strategies that have attracted the most capital.
Several risk dimensions deserve careful attention:
- Liquidity risk is the most obvious. Private credit investments are typically illiquid, with lock-up periods that can extend for years. In a portfolio context, this means that private credit allocations reduce the flexibility to respond to changing conditions — a constraint that needs to be sized appropriately relative to the investor’s overall liquidity position
- Credit risk concentration can be less visible in private credit than in public markets, where prices and spreads provide a continuous signal of market sentiment. In private portfolios, deteriorating credit quality may not become apparent until a formal valuation event or, in the worst case, an actual default
- Covenant quality has declined across the private credit market in recent years, as competition among lenders has increased. Weaker covenants reduce the protections available to lenders when borrower performance deteriorates — a factor that Toby Watson regards as worth scrutinising carefully when assessing any private credit strategy
The Importance of Analytical Rigour in Credit Assessment
For Toby Watson, the single most important factor in determining whether a private credit investment will perform as intended is the quality of the underlying credit analysis. This sounds obvious — but it is an area where the standards vary enormously across the private credit market.
During his years at Goldman Sachs International, Toby Watson worked extensively on credit structures that required detailed analysis of borrower financials, collateral quality, structural protections and the full range of downside scenarios. That analytical discipline — assessing not just what the investment looks like under base case assumptions, but how it performs when things go wrong — is directly applicable to evaluating private credit strategies today.
Floating Rates and the Current Environment
One feature of private credit that has attracted particular attention in the current interest rate environment is the prevalence of floating rate structures. Unlike fixed rate bonds, which lose value when rates rise, floating rate loans adjust their interest payments as base rates move — providing investors with a degree of protection against rate increases.
This characteristic proved genuinely valuable during the rate rises of 2022 and 2023. However, Toby Watson notes that floating rate structures are not without their own risks in a higher rate environment: as borrowing costs increase, the debt service burden on borrowers rises correspondingly, which can put pressure on credit quality — particularly for more leveraged borrowers operating in cyclically sensitive sectors.
Understanding the full two-sided nature of this dynamic is essential for investors seeking to incorporate private credit thoughtfully into a diversified portfolio. It is precisely the kind of nuanced, factor-level analysis that separates rigorous credit assessment from a superficial focus on headline yield. For Toby Watson, that rigour is not optional — it is the foundation on which any serious engagement with private credit must be built, and a discipline he has applied consistently throughout his career in global finance.
