Why private credit should form part of every investor’s portfolio

With investors continuously searching for better returns and ways to decrease their exposure to public markets, financial advisors must find new ways to offer clients access to added liquidity, a regular income, and portfolio diversification. Whether clients are income-focused investors or purely looking for portfolio diversification, private credit is one option now firmly on the radar.

In recent years, private credit investing has outperformed traditional fixed-income investment products and offers clients a spectrum of opportunities with different risk-return profiles. The rise in private credit has led to a new breed of investment managers providing advisors and clients exposure to more diverse market segments through credit funds. As a relatively new investment option, individual investors and advisors are now seeking to understand the advantages of a private credit fund and why a private credit investment should form part of an investment portfolio.

Benefits of a private credit fund within an investment portfolio

Like most alternative investments, private credit behaves differently from traditional investment options such as bonds or shares, which is one of the reasons why it is worthwhile as part of an investment portfolio. Whether utilised alongside or to replace traditional fixed-income strategies, a private credit investment offers diversification, income generation, resilience, and enhanced returns. In most cases, a more lucrative investment choice, a private credit fund, offers returns of around 7-9% compared to an investment-grade bond of around 3%.

Regular monthly cashflow

One of the main drawcards of a private credit investment is the ability to access a consistent cash flow. Most private credit loans offer regular interest repayments, especially those to small to midsize businesses. For financial advisors looking at private credit investments for clients, most private credit funds provide the choice of either a regular monthly income stream or reinvested dividend payments. This gives investors choice and flexibility when it comes to their portfolio.

Lower capital volatility

Private credit relies more on the strength of individual investments than broader market trends. In most cases, returns from a private credit investment are contractually obligated as opposed to equity investments, where the returns depend on the company’s performance. The direct relationship between private credit lenders and borrowers affords more flexible loan terms and efficient monitoring and negotiation should a borrower default.

Private credit extends across the entire capital stack, including unsecured lending and mezzanine finance. However, most private credit loans are secured by assets (such as a mortgage, hard assets, or loan receivables), which produces strong downside protection compared to the public bond market, which is mostly unsecured, albeit on highly rated companies. If a borrower defaults, the assets securing the private credit loan can be sold to mitigate losses, providing downside protection for investors.

Private credit lenders aim to limit risk by negotiating loan structure protections through covenants. Covenants are legally binding and enforceable terms that ensure the borrower maintains interest and principal payments. Examples include limiting a borrower’s leverage or maximum debt service cover ratio.

Floating rate return

Inflation is a constant threat to investors as it affects the purchasing power of their savings and investment returns. Inflation and market fluctuations can harm the returns of fixed-income investments such as bonds. When interest rates rise, the interest rate remains the same and lags behind the market.

Private credit investments help investors protect themselves against inflation due to the loan structure. Corporate loans receive their returns from fees charged to the borrower, and the interest usually operates on a floating or variable rate. From an investor’s perspective, this adds an extra level of protection as the rate of return moves in line with the bank bill swap rate (BBSW). Investors with traditional fixed-income assets with higher exposure to interest rate risk can include a private credit investment to improve portfolio diversification and reduce the correlation to conventional fixed-income assets.

Low correlation to equities and real estate equity

Less correlated to public market investment swings than equity investments, private credit investments can act as a buffer during market instability, reducing the overall volatility of an investor’s portfolio. By reducing volatility, investors open themselves to the potential of more stabilised returns each year and a more significant financial return over time.

Why Remara Credit Funds?

Designed to give investors exposure to a diverse range of asset classes, Remara’s private credit investments are structured to balance capital distribution, reduce a client’s portfolio risk and provide diversification. Where private credit investments were previously only available to institutional investors, our funds now deliver the benefits of private lending to retail and wholesale investors — offering solid returns, focusing on capital preservation and consistent and attractive performance to suit investors across all investment levels.

Funds overview

Enhanced Cash Management Account

• 5.20%* variable interest rate
• Higher than average interest rate that isn’t subject to account balance or having to make regular deposits
• No lock-in contracts enabling investors to access their funds when needed
• A great alternative to traditional fixed-income investments, e.g. bonds and term deposits
• A universal fund that can form part of an investment portfolio at any stage, including investors with self-managed super funds or those that are between investments

Cash Management 6 & 12 month Term Notes.

• Stable investment account offering up to 6.35% p.a. Option for fixed and variable rates depending on investors risk profile
• Interest calculated daily and paid monthly or at maturity
• A great alternative to traditional fixed-income investments, e.g. bonds and traditional term deposits
• Suitable for investors in the preservation stage of their investment journey

Investment Grade Account

• 9.25% annualised return p.a. (post fees)*
• Minimum investment $10,000
• The Fund invests in assets that are rated or shadow-rated Investment Grade. The Fund has a strong security rating via the exposure to Investment Grade rated or shadow-rated investments only
• Offers investors a strong cashflow opportunity with a lower risk profile
• Suitable for investors in the preservation stage of their investment journey

Private Credit Income Fund

• 12.68% annualised return p.a. (post fees)*
• Minimum investment of $10,000 with the ability to make redemptions every quarter
• Regular income stream via monthly interest repayments with the added option to reinvest
• Low-risk, high-yield fund ideal for wholesale and retail investors who want a higher rate of return and regular access to their money
• Suitable for investors in the accumulation, preservation or retirement stages

Credit Opportunities Fund

• 14.83% annualised yield p.a (post fees)*
• High yield, open-ended Fund offering monthly distributions and semi-annual redemptions
• Consistent monthly income and equity-like returns
• Open to wholesale investors looking to add a growth investment to their portfolio
• Suitable for investors in the accumulation phase

As you can see, a private credit investment can offer many benefits to an investor’s portfolio across the accumulation, preservation, and retirement stages of their journey. Contact our investment team today to learn more about Remara’s range of private credit funds and how they could benefit you or your client’s investment portfolio.

^{*Past performance is not an indicator of future performance}