What is Private Credit?
In an era of fluctuating interest rates, investors seeking high current income have found themselves at a crossroads. Invest in traditional fixed income products, which may be sensitive to movements in interest rates and struggle to keep pace in an inflationary environment, or search for investment alternatives to help combat these pressures. What seeks to generate both high current yield and subdued risk exposure?
Enter private credit. Private credit refers to debt investments that are used to finance a wide range of lending activities and are negotiated directly between a lender and a borrower. Private credit investments are often provided by non-bank lenders. Private credit takes different forms, including senior secured loans and mezzanine debt, among other structures. What sets private credit apart is its flexibility and tailored approach to lending, allowing for customized terms and structures that meet the specific needs of both borrowers and lenders.
Private credit can be an alternative source of financing for companies and individuals who may have limited access to traditional bank loans or prefer the flexibility and terms offered by non-traditional lenders.
For investors, private credit has the potential to generate higher returns compared to traditional fixed-income investments. Additionally, private credit may offer more price stability than its public counterparts due to the illiquid nature of private credit investments.
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