Oct 17, 2022
In our opinion, private credit is a great way to earn stable income as well as construct a diversified portfolio. Private credit has grown substantially over the last ten years and is an increasingly important part of most institutional and high-net-worth individuals’ portfolios.
So, what is it? Private credit is an alternative asset class made up of privately negotiated loans and other debt incurred by companies to help fund their operations or drive growth.
An institution that lends capital then earns interest for lending the money to the business over an agreed upon period of time. Private credit as an asset class is an investment in a fund that provides these loans to companies.
How does investing in private credit compare to other asset classes? To put it into context, investing in equities, or stocks, generally have more upside but also are accompanied by greater risk. Credit on the other hand generally can offer more stability and consistency, but may lack some of the upside that equity can offer.
There are dozens of types of private credit: direct lending, opportunistic, performing and more. These credit types span the risk spectrum, and as with most investments, investors are compensated based on this level of risk associated with each sleeve. Generally credit investments pay regular distributions, and as risk goes up, generally the return profile follows suit.
Due to the contractual nature of credit products from interest payments, returns are generally less volatile while also being less correlated to equity and crypto markets - meaning they generally don’t move in tandem.
We believe private credit is a great opportunity for investors to earn a stable income with higher returns than traditional fixed income, more stability, and create a diversified portfolio.
Cash Management
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