Private credit is lending to private companies, by non-bank entities (typically private credit funds), in bilaterally negotiated arrangements between the lender and borrower, based on the specific requirements of the borrowers.
Private debt has experienced unprecedented growth since 2009, going from $320bn in 2010 to $875bn at the end of 2020, according to Preqin. It is now the third-largest asset class in the alternatives space, measured in assets under management (AUM) figures - only behind private equity and real estate. Preqin also forecasts an 11.4% compound annual growth rate which would increase the total AUM to nearly $1.5tn in 2025.
There is a wide range of strategies that fall under the umbrella of private debt: direct lending, specialty lending and credit opportunities, mezzanine and distressed. It also includes other strategies including infrastructure and real estate debt, as well as more derivative instruments such as CLOs/ CDOs.
Direct landing has the largest slice of the private credit market by AUM. The strategy consists of senior loans and limited junior loans made directly to companies, with lenders often choosing to specialise in particular industries and/or geographies.
Why credit is attractive for private investors
We argue that private debt can be a good addition to a mature portfolio inclusive of private equity for its lower volatility, diversification benefits and downside protection offered through the attractive risk-return profile, and income generating abilities of the asset class.
The attractiveness of the added diversification that private credit’s returns bring to a portfolio, coupled with access to well-seasoned managers with proven track records, means that Moonfare is in prime position to offer you privileged access to this important part of the private markets universe.
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Disclaimer: Moonfare is a technology platform that enables individuals and their advisors to invest in top-tier private equity funds. Moonfare does not make investment recommendations and no communication, in this publication or in any other medium should be construed as a recommendation for any security offered on or off its investment platform. Alternative investments in private placements, and private equity investments via feeder funds in particular, are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. The value of an investment may go down as well as up and investors may not get back their money originally invested. An investment in a fund or investment vehicle is not the same as a deposit with a banking institution. Please refer to the respective fund documentation for details about potential risks, charges and expenses. Investments in private equity are highly illiquid and those investors who cannot hold an investment for the long term (at least 10 years) should not invest. Past performance information contained in this document is not an indication of future performance. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Forward-Looking Information must not be construed as an indication of future results and are included for discussion purposes only. Forward-Looking Information is calculated based on a number of subjective assumptions and estimates dependent on the type of investment concerned. There can be no assurance that private equity will achieve comparable results or be able to avoid losses. The performance of each private equity investment may vary substantially over time and may not achieve its target returns.
* Past performance is no guarantee of future returns.