Why Invest in Private Debt?

Sophisticated investors are constantly seeking ways to diversify their portfolios, maximise returns, and manage risk effectively.

As traditional investment avenues become more crowded and market volatility persists, private debt, an alternative investment pathway, is an increasingly attractive option.

So, why should you invest in private debt? We’ll shed light on why it’s a trending asset class and what you can expect from it.

Private debt is on the rise.

Within the realm of alternative investments, private debt (sometimes imprecisely called “private capital”) is emerging as a standout performer. The maturity of private debt and its integration into mainstream investment strategies has caught the attention of investors seeking to diversify their holdings, generate income, and achieve their financial goals.

The evolution of private debt.

This emergence of private debt into the mainstream has been partly driven by the shift in focus among mainstream financial institutions. For some years now, banks have had a reduced appetite for land and development funding, largely because these mortgages are more complex and involved. Instead, banks have been focusing more and more on retail mortgages for home owners and investors — they’re more straightforward and easier to execute. This follows a trend in the US and Europe where non-bank lenders are increasing their market share in these commercial segments.

Over time, this growing gap in supply has forced non-retail developers to look elsewhere to raise capital for their projects. Non-bank lenders initially began raising capital for these alternative mortgage products and typically reserved them for a small pool of ultra-high-net-worth individuals. Over time though, private debt has performed strongly, grown in popularity and now evolved into a mature asset class of its own right.

Here’s why it has been so successful.

Key benefits of private debt.

Diversification and portfolio risk management.

Unlike traditional assets, private debt investments have little-to-no connection with stock markets. In fact historically, when broader financial markets experience downturns, private debt often remains steady, strengthening investment portfolios.

As such, private debt offers a unique avenue for diversification and portfolio risk management for the investor. Whether or not traditional asset classes are doing well, private debt can help protect investors’ portfolios and buffer against the unpredictability of financial markets.

Often, with companies that run contributory funds like Bowery, rather than invest in a pool of mortgages, investors are able to diversify their risks further by selecting the specific opportunities. Knowing that your investments are spread across various geographies and property types increases an investors ability to control and mitigate risk based on their specific portfolios and appetites. This allows you to take a more measured approach to investing.

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