PRIVATE CREDIT: THE NEW ALTERNATIVE?
OVERVIEW
With more than $7 trillion of the safest global bonds now offering negative yields* and financial markets continuing to experience outbreaks of volatility, investors are seeking out alternative assets that can offer positive real yields, plus good diversification away from the ups and downs of listed bonds and equities.
For Institutions
WHAT’S HAPPENING?
As new regulatory constraints have led banks to rein in some lending activity, asset managers and others are moving into the resulting funding gap. They’re lending directly to borrowers in large end-markets, such as commercial and residential real estate, middle-market corporates, and infrastructure.
These privately-originated credit investments present valuable yield enhancement and capital deployment opportunities.
WHY IT MATTERS
As well as providing much-needed yield, private credit can deliver attractive long-term risk-adjusted return potential—and serve as a good complement to traditional publicly-traded allocations.
THE TAKEAWAY
Most private credit opportunities require intermediate- and long-term funding, so they offer higher return potential and yield pickup to compensate investors for giving up ready access to liquidity.
At the same time, they tend to enjoy lower default levels and higher recovery rates than public credit assets. And can offer well-diversified exposure to many different sectors, types of borrowers and regional trends.
*As of February 9, 2016