What is Private Credit?

Simply put, private credit is an asset class comprised of private loans issued by corporate entities and non-bank lenders. Also referred to as private debt, loans include consumer and small to medium business loans, venture debt, specialty loans, rescue finance and other forms of private debt. It is sought by businesses and individuals when they cannot access funding from public markets.

Investing in private credit

When considering investing and expanding one’s wealth portfolio, many turn to the more common investment sources typically offered through banks and other lending institutions, as a first point of call. But more often than not these investments offer no more added benefits or increase in base capital than your standard bank account. With stricter lending criteria, less than ideal terms and conditions and the global economy, more and more people are looking for alternate sources of investment, specifically those with added benefits, flexibility and higher return with reduced risk profile.

Private credit is one of these investment opportunities. A non-traditional asset source, private credit also known as non-bank lending is typically comprised of higher yielding, illiquid investment opportunities. These opportunities include secured debt with fixed income characteristics spanning across various sectors such as property, direct corporate lending, leverage finance, specialty finance, asset lending and project finance.

What sets private credit apart?

Private credit provides investors with additional sources of return in both private and public markets. It also provides flexibility and greater return on investment. The private credit market is gaining more and more traction with borrowers as bank institutions tighten lending criteria and make it exceedingly more difficult and costly to access traditional bank credit. For investors, banks offer limited investment choices that yield low returns. Subsequently investors are looking at the private credit market to increase their portfolio returns. Alternate investment opportunities offer investors:

• Added benefits
• Flexibility
• Choice
• Higher returns
• Lower risk profile

Benefits of investing in private credit

Alternative investments behave differently to more traditional investments like bonds or shares. They also offer investors added flexibility, consistency, a higher return on investment and lowered risk profile. Private credit can be a far more lucrative investment option with returns of 7-9% compared to the typical 3% for an investment grade bond.

Lowered volatility

Private credit relies less on broad market trends and more on the strength of the individual investments made. This allows for a reduction in risk within your portfolio investment whilst also adding an income like return.

Increased portfolio diversification

Private credit offers increased portfolio diversification as it has a low correlation to traditional markets. This means there is a limited relationship between the two. Changes or fluctuations in asset class (for example shares) will have a limited effect on the other assets classes within the investors portfolio (for example private credit). This offers investors a more balanced return. Investing in private credit could help mitigate the effects of domestic and international stock market volatility and global occurrences.

Enhanced returns

A private credit investment can provide investors with a greater return on investment. It does this by giving access to new investment strategies that aren’t available through banks and traditional lenders. Typically, funds involve longer term investments which have the potential for a higher overall return. They can also allow investors to hedge their portfolio against inflation and interest rate fluctuations.

Regular income or re-investment

Most funds offer the choice of either a regular monthly income stream or reinvested dividend payments. Affording investors choice and flexibility when it comes to their portfolio.

With the added benefits offered by alternative investments, many investors are choosing to add them into their portfolios.

What is the best way to invest in private credit?

As an investor you can buy into funds which supply secured loans or private debt to high quality borrowers. These loans may be against business assets, business equity, corporate debt, real estate and property or specific projects. Some of these funds including our own will offer the added benefit of internal security structures to further protect your capital investment and associated returns. In these situations, the loan originator/ lender funds part of each individual loan to create alignment of interest with investors. As the fund increases in size over time, through the issuing of more loans, the overall strength of the portfolio in turn increases as the individual loans are covered by the remaining performing loans.

At Remara we offer a private credit investment fund to clients looking for a low-risk investment opportunity that yields higher than average returns. Affording control and flexibility with the choice of a secure long-term income through monthly payments or reinvestment plan, our fund is becoming increasingly popular as an investment choice. If you would like to find out more about our fund, you can find more information here. Equally if you would like to speak with one of the team, please feel free to contact us.