Private Debt Market: Many Happy Returns, as Debt Funds Continue to Soar

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Private debt has become an increasingly popular investment as year-on-year, official interest rates and inflation have surged. In recent years, private debt funds have been gaining traction amongst investors seeking higher returns with less volatility than equity investments.

According to Investor Daily, one seasoned investor noted earlier this year, “at the moment, you can get a net return in private credit of about 8.5 per cent when long-term equity return is 9 per cent to 10 per cent. In other words, you can get about the same return as equities with hypothetically one-tenth of the risk”.

Private debt, or credit investments, has become an increasingly attractive option for investors in the current market conditions. Since the 2007–2008 Global Financial Crisis, bond market returns have been their weakest in decades, and private credit funds are targeting returns of 9-12 per cent in these markets. This is due to the low volatility associated with these investments and the potential for higher returns compared to traditional equity investments.

Private debt is a form of financing that occurs between two or more parties outside of traditional banking institutions and other financial intermediaries. It has the potential to generate attractive yields compared to traditional investments such as government bonds, CDs, and money market accounts. Investors typically use private debt instruments to supplement their portfolios and diversify their income streams.

The global pandemic has fuelled investor appetite for private debt investments due to their relative stability and ability to generate returns amid stock market volatility. Private debt instruments provide liquidity during times of stress and access to a range of asset classes that are typically unavailable via public markets.

Overall, there is no denying that interest from our clients in private credit and debt funds has continued to skyrocket over the past year despite challenging economic conditions caused by Covid-19.

Private debt’s attractive yields compared with traditional investments and its ability to offer stability in turbulent times make it an increasingly compelling option for those looking for high returns without excessive risk exposure.

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