Key Arguments for Private Debt

Key Arguments for Private Debt

2022 has proved that diversification is key in portfolio management. Private debt is the interest and credit-related twin of private equity. Both have a history of being highly intertwined, and a big part of private debt exposure is related to private equity business.  

While being an important asset class in the U.S. for years, Private Debt is only discovered as a powerful instrument with positive contributions to the portfolios of almost any investor in Europe and Switzerland.  

As a result, more and more private debt-independent niches are developing. These private credit niche markets are primarily growing because of the retreat of banks from specific sectors of the traditional credit business and their reluctance to enter new credit businesses due to the regulation (Basel II, etc.) and the recent dominance of risk management and compliance in banking.  

As credit banks reduce their exposure and volume on their books and pull back from specific market segments, opportunities arise for investors to step in and profit.  

For investors, two key arguments speak for private debt investments:   

  1. A higher return due to an illiquidity and complexity premium  
  1. Constant cash flow from stable payouts.  

Private debt is an interesting segment of the credit market for various reasons, being:  

  • a multitude of different traditional and alternative risk factors with highly individual pricing (low standardization);  
  • attractive returns due to less pressure on risk premiums and various time frames (short-, mid-, long-term); 
  • strong diversification potential and varying liquidity parameters.