First, credit risk could be controlled both by diversification (as with indexing) and by acquiring only investment-grade assets. However, a decision to purchase only high-grade debt would significantly undermine the objective of avoiding an effect on the allocation of credit. In decisions about the composition of the permanent portfolio, it might be best to give the greatest weight to maintaining neutrality.
Credit risk could be managed through the diversification implied by the neutrality objective and by relying on the presumption that the higher return on riskier assets appropriately compensates for default risk, especially within a diversified portfolio. Second, a measure of liquidity and transparency could be ensured by limiting assets to those traded on markets with reasonable pricing transparency and some acceptable liquidity.