Private Debt Investment

With markets sitting at very low long term interest rates, investors are in for a period of low long term returns, potentially as low as mid to low single-digit returns, in the traditional investment classes, ie equities, fixed interest and real estate.

In particular, the large pension funds will need to find alternative sources of returns to meet their future liabilities.

One solution could be investing in Private Debt, which is currently filling the void created by constraints in the banking sector as the banks are becoming more conservative.  Return premiums are higher as a result, creating an ability to earn double-digit returns, with acceptable risk levels.

Private Debt ranges from senior debt, through mezzanine debt up to almost equity, and allows investors to invest in strong asset-based and/or cashflow based assets with a priority position when compared to traditional equity.  Private investors (High Net Worth Investors and Family Offices) have traditionally invested in this space with success, due to focus on industry-specific expertise so that risks can be both understood and managed appropriately.

Investors will continue to explore this solution whilst the banks are constrained.  Expectations are that more well managed pooled fund opportunities will be brought to institutional investors and some institutional investors may invest directly where they have the appropriate in house expertise. 

Leo Economides