Depending on the stage in your life, you are either building wealth or looking to transfer over into income based products for retirement.
Either way, an attractive investment option for either investor type is private credit.
Reason being - at today's rates the investor is receiving equity like returns with debt like risk, paid monthly.
A Credit Fund is a portfolio of loans comprised of typically of first lien positions that provide financing to operators in various asset classes.
Most credit lending has floating rates to hedge against interest rate increases - which is a great, inflation protection feature - however, it's the stability of returns that have made private credit funds a compelling option for investors.
Why Private Credit Now?
Over the past decade, there's been a boom in private debt funds as investors look for alternatives to traditional fixed-income investments. But why is this happening?
Low Interest Rates
One of the main drivers of the private credit boom is the current low-interest-rate environment. With central banks keeping interest rates low in order to stimulate the economy, traditional fixed-income investments like bonds and treasuries are offering relatively low yields. This has left investors searching for higher returns, which they can find in private debt funds. Private credit funds offer higher yields than traditional fixed-income investments, making them an attractive option for investors in search of higher returns.
Another factor that's contributed to the growth of private credit investing is regulatory changes in the banking sector. Since the financial crisis of 2008, regulators have imposed stricter rules on banks, making it more difficult for them to lend to certain types of borrowers. This has created a gap in the market that private credit funds have been able to fill. Private credit funds offer loans to businesses that may be too risky for traditional banks to lend to, providing a valuable source of financing for companies that might otherwise struggle to access credit.
Investors are also drawn to private credit funds for their diversification benefits. Private credit investing offers exposure to a wide range of borrowers outside of the traditional fixed-income markets, which can help to diversify an investor's portfolio. In addition, private credit funds are typically less correlated with other asset classes, such as equities and bonds, meaning they can provide a valuable source of downside protection during times of market volatility.
Finally, investors are attracted to private credit funds because of their strong performance. Private debt funds have consistently outperformed traditional fixed-income investments like bonds and treasuries over the past decade. This is due in part to the higher yields offered by private credit funds, as well as their ability to generate alpha through active management and careful selection of borrowers.
All of these factors combined have contributed to the current golden era of private credit investing. With low interest rates, regulatory changes, diversification benefits, and strong performance, private credit funds have become an increasingly popular choice for investors seeking higher returns and lower risk. However, it's important to note that private credit investing is not without risks. As with any investment, it's important to carefully consider the risks and potential rewards before investing in a private debt fund. Nonetheless, the current environment makes the case for considering private credit investing as an option.
To learn more about Private Credit strategies, you can access our Credit White-paper by clicking the image below.