Private Debt

Private debt investments provide steady income through direct loans to businesses, offering stable, risk-adjusted returns compared to traditional bonds.

What is Private Debt?

Private debt (often called private credit) refers to loans and debt financing provided through private channels rather than public markets. In practice, non-bank lenders (like private funds, insurance companies, or asset managers) extend credit directly to borrowers, and these debt instruments are not issued or traded on public exchanges​.

This contrasts with public debt such as corporate or government bonds, which are publicly issued and traded. Private loans are typically privately negotiated transactions, allowing customized terms to fit a borrower’s needs without the regulatory and disclosure requirements of public markets.

Why consider Private Debt for your portfolios?

Structured to provide regular interest payments – at higher rates than traditional public debt instruments – which can be attractive to investors looking for steady cash flows. Private loans avoid the noise of traditional fixed income markets, exhibiting materially lower volatility.

Private debt provides diversification benefits due to its low correlation with traditional asset classes. The performance of private loans is tied to idiosyncratic borrower outcomes and contractual interest payments, rather than daily market sentiment.

Many private debt strategies emphasize capital preservation by investing at the top of the capital stack. Direct lending, for example, typically involves senior secured loans, which are first in line for repayment. when executed prudently, private debt offers a way to earn enhanced yield while maintaining structural protections that cushion against losses.

Private debt opens the door to niche credit opportunities not available in public markets. Through specialty finance and opportunistic credit funds, investors can gain exposure to assets like middle-market leveraged loans, asset-based loans, factoring, private real estate or infrastructure debt, consumer loans, or distressed situations that are not typically available in mainstream bond indices.

Direct lending can be a strong source of stable income

Annual income return, 2005 to 2023 Data as of December 31, 2023. Source: Cliffwater, Bloomberg.
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