ADS.finance founder says private credit alpha starts with downside protection

As private credit keeps attracting institutional money, ADS.finance founder Asfandyar Uppal says investors are confusing equity-like risk for true credit. His case: durable returns come from collateral, conservative leverage and capital protection, not chasing the highest coupon.

Why it matters: - Private credit has become one of the fastest-growing asset classes in global finance. - Institutional capital continues flowing into private credit as banks face tighter regulation and investors look beyond traditional fixed income. - Uppal says the biggest risk for investors is misunderstanding what they are buying, which can turn a yield hunt into equity-like downside.

What happened: - Asfandyar Uppal, founder of ADS.finance and a private credit investor, laid out his view on how investors should evaluate private credit. - He argued that many buyers think they are purchasing credit when they are actually taking equity risk with a fixed coupon. - He said true credit alpha comes from downside protection and returns above market expectations without equity-like risk. - The remarks were framed around a growing private credit market that attracted more institutional capital in Australia and internationally.

The details: - Global private credit fundraising exceeded US$200 billion in 2024. - Uppal said the best private credit investments should be close to beta neutral, with equity markets such as the S&P 500 having little effect on returns unless conditions become catastrophic. - He said traditional credit depends on contractual repayment, collateral, legal security and disciplined underwriting. - He said equity investing depends on future business performance, development success or asset appreciation. - Uppal said the more an investment relies on future growth instead of collateral, the more equity-like the risk becomes. - In real estate lending, Uppal said he prefers loans below 65% loan-to-value. - He said that level leaves enough headroom to recover principal, legal costs and enforcement expenses without impairing investor capital. - He said a loan below 65% LVR can stay better protected even if property values fall 20%, because borrower equity absorbs much of the decline first. - Uppal said leverage above conservative levels can make the extra yield poor compensation for the added downside exposure. - He said every opportunity should be judged on cash flow, character and collateral. - His test before investing is whether collateral would be enough to recover investor capital if a borrower stopped responding the next day.

Between the lines: - Uppal is drawing a sharp line between disciplined credit underwriting and structures that use the debt label while carrying equity-style risk. - The message is that rising private credit volumes do not automatically mean rising investment quality. - As the market expands, investors may need more underwriting discipline and less focus on headline yield. - He expects stronger oversight and transparency to separate managers with conservative lending standards from those using more aggressive structures.

What's next: - Uppal expects private credit to keep growing as the asset class matures. - He expects investors to become more sophisticated about distinguishing genuine private credit from investments that only look like debt. - He also expects regulatory oversight, transparency and underwriting standards to improve over time. - That shift, he said, should filter out managers that rely on aggressive lending structures.

The bottom line: - In Uppal's view, the best private credit strategy is not reaching for the highest coupon. - It is protecting capital first, then earning returns that still look good after risk is fully priced in. - More information: www.pbfounding.com