Investing in private debt
Why investors are looking to private debt
Investors look to private debt for resilience, diversification and to pursue better returns. Investing in private debt could give your portfolio access to alternative sources of higher yield and flexibility to invest in the global real economy. Private debt investments can also be an effective way of diversifying away from listed bonds and growth assets.
Investors in private debt generally receive a yield premium over traditional fixed income. The return premium can vary depending on the type of investment strategy, however, it's been robust over the past decade.
Private debt loans are typically floating rate. They offer investors some protection from inflation eating away at their returns, especially compared to fixed-rate bonds, which lose value in a higher-inflation or rising–interest-rate environment. In a deflationary period, with a decline in interest rates, rate floors in private debt deals can also help soften the impact of rate declines.
- 1 A hunt for yield
- 2 ESG investing
- 3 The retreat of bank funding
- 4 The growth of private equity
Potential benefits of investing in private debt
Choosing a private debt strategy aligned with your objectives
Private debt is an extremely broad and versatile asset class, offering a variety of approaches. That's why, when establishing a portfolio, you need to know which styles and strategies will best suit your needs.
Your investment objectives and existing holdings will shape how you approach private debt and which sub-categories you select. We use our global reach and sophisticated tools to select high-quality managers and build portfolios to match your desired risk and return profile.
Two important factors for private debt investing:
1. Ability to leverage scaleBeing able to allocate more money means you can diversify across more managers and assets. It can also drive down costs and improve efficiency. Accessing economies of scale through a collaborative platform can help you achieve these aims.
2. Asset manager relationshipsAccessing high-quality managers requires long standing relationships. Asset managers often need to move quickly to access new opportunities, and investors need to have cash ready to allocate quickly and efficiently.
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