Private Debt Investor

Most private debt markets were seriously affected by the 2008 financial crisis. Banks decreased the amount of money lent because they were compelled to mend their balance sheets. While this was happening, mid-market firms required fresh capital to repay their current loans and promote the growth of their business.

Institutional investors were drawn by two merits in private debt:
1. Higher profits than fixed income indices and some equity
2. Reduced correlation with other asset classes

Many investors consider private debt investment less risky than stocks and other types of investments. Currently, More than half of the institutional investors in the U.S. have ventured into private debt investment.

Private debt has become one of the top ten asset classes in recent years. The future of private debt investment is bright and is expected to provide some of the best and highest returns over the next three years. This takes private debt investment to a whole new level as an investment vehicle. Although the U.S. is still the heart of the non-bank loaning industry, the growth engines are expected to roll out in Europe in the next few years.

Key components of private debt
Direct Lending
Direct lending is when non-bank institutions offer capital to medium and small sized companies as loan rather than equity. In other words, direct lending is a wide range of risk profiles above senior debt.

This refers to a private loan which is a subsidiary of a senior secured loan but superior to equity in a company’s capital make up.

Venture debt
These are small loans given to small companies and start-ups. They have negative or reduced free cash flow for working capital. Venture debts provide investors with the opportunity to buy equity.

Distressed debt
These are debts that companies have with pending or actual agreement default.

Unique Characteristics of Debt Investments
Investing in debt is very different from investing in stocks or other types of securities. However, it is important to research the type of debt investment you are interested in before making the investment. Having a better understanding of debt investment and taking notes from experts in the industry before becoming a private debt investor can help you make wise financial decisions. Consider starting small and expanding slowly as you get the hang of it.