Private Credit is Thriving Amidst Rising Rates and Inflation

Private Credit is Thriving Amidst Rising Rates and Inflation

What Exactly is Private Credit?

Private credit refers to debt financing provided by non-bank entities such as private equity firms, hedge funds, and specialty finance companies.

This type of credit is typically extended to companies that may not qualify for traditional bank loans or prefer alternative sources of funding. Private credit can take various forms, including direct lending, mezzanine financing, and distressed debt investing.

It has become an increasingly important component of the overall credit market, offering borrowers access to capital outside of the traditional banking system.

Private credit is an asset class that has continued to flourish in recent years, despite rising inflation and interest rates reaching their highest point in over 22 years. This asset class involves loans negotiated directly between the lender and borrower, usually without the involvement of a bank.

The private credit market has tripled to $1.5T since 2015, and Apollo Global Management believes it could grow another $40T. The private credit market has become one of the fastest-growing businesses for the world’s largest alternative asset manager, Blackstone.

Acceleration in recent years…

In 2023, the private credit market has seen an acceleration in size, with the total number of private credit deals expected to reach another all-time high. With bank failures forcing financial institutions to tighten lending standards, borrowing has become more difficult, pushing more companies towards borrowing from private credit funds.

Private credit funds are attractive to institutional investors for several reasons, including higher APYs, lower volatility, and the potential for passive income, often on a monthly basis throughout the deal’s lifespan. However, one concern in the industry is how these loans will hold up in a longer recession. Diversification becomes crucial in the face of such uncertainties, and one platform is looking to make it easier to diversify into different private credit deals.

Adding private credit to your portfolio

Access to private credit is changing with Percent, a platform exclusively dedicated to private credit and making it available to everyday accredited investors. Since 2018, they’ve financed over $936M across 495+ deals. Investors on the platform can browse a variety of private credit investments across different industries, including corporate loans, farmland financing, or real estate debt.

Through Percent, accredited investors have access to an average APY of 18.72% as of Nov. 30, 2023, with low minimums starting at $500. Many deals have durations between nine months and several years, with some offering liquidity after the first month. Potential for passive income, often monthly, throughout the deal’s lifetime, makes it an attractive investment option. Sign up for an account to start browsing all deals available on their platform and invest in private credit deals with Percent.

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How Can I Make Money With Private Credit?

There are several ways to potentially make money with private credit. One avenue is through direct lending, where you can invest in private credit funds that provide loans to companies at attractive interest rates.

Another option is to explore distressed debt investing, which involves purchasing the debt of companies in financial distress at a discount and potentially profiting from their turnaround or restructuring.

Additionally, mezzanine financing can offer opportunities for earning higher returns by providing capital to companies in exchange for equity or a higher interest rate.

It’s important to note that private credit investments carry risks, so it’s essential to conduct thorough due diligence and consider seeking advice from financial professionals.

Martin Hamilton

Martin Hamilton is the founder of Guiding Cents. Martin is a Writer, Solopreneur, and Financial Researcher. Before starting Guiding Cents, Martin has been involved in Personal Finance as a Mortgage Planning Consultant, Licensed Real Estate Agent, and Real Estate Investor.

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