WHAT YOU NEED TO KNOW ABOUT

private

debt

What is Private Debt?

Private debt has only recently been considered an asset class in its own right, and the term covers a range of different investment styles and strategies. The term ‘private debt’ is typically applied to debt investments that are not financed by banks and are not issued or traded in an open market, while the word ‘private’ refers to the investment instrument itself and not necessarily the borrower – i.e., public companies can borrow via private debt just as private companies can. Private debt falls into a broader category termed ‘alternative debt’ or ‘alternative credit’, and is used interchangeably with ‘direct lending’, ‘private lending’, and ‘private credit’.

The Rise of an Asset Class

The growth of the private debt market has been nothing short of phenomenal over the last decade. With traditional lenders cutting back their financing following the financial crisis, funds have filled the vacuum to provide crucial financing to the real economy and to meet this very real demand. This, combined with institutional investors’ quest for yield, has provided the right conditions for private debt funds to flourish. Even after several years of growth, private debt fundraising reached new record-breaking levels in 2017, with the total raised globally surpassing US$100bn for the first time, according to Preqin figures.1 The market shows little sign of abating. With private debt funds currently managing around US$600bn in assets worldwide, this figure is set to increase to US$1trn by 2020, the Alternative Credit Council predicts.

 
 
 

Advantages of Investing in Private Debt

Low Correlation with Traditional Instruments

High-Yield Instrument

Fixed Income Payments

Low Volatility