A private credit primer

Receive free Capital markets updates

We’ll send you a myFT Daily Digest email rounding up the latest Capital markets news every morning.

Private credit is hot at the moment. Alphaville, our friends at Unhedged, Due Diligence and the mainFT have all been all over it. But given the volume of emails we get asking for some of the underlying reports we use, there seems to be appetite for even more.

So if you want learn more, then we have come across a public UBS primer that is actually a really good top-level exploration of the industry, what it is, why people love it so much at the moment, and the risks.

The “key takeaway” section is pretty unremarkable . . . 

Private credit strategies like direct lending can offer an attractive option for investors looking to generate higher yields and diversify their portfolio from traditional fixed income. However, the illiquid nature introduces risks that must be properly assessed and managed to an individual’s cash flow needs. Direct loans tend to provide more conservative risk-return profiles than leveraged loans and high yield bonds. Though defaults do occur, the secured structure of direct loans helps to protect principal. Direct lending strategies have insulated investors from rising rates due to their floating-rate nature while bonds have experienced equity like declines. For investors willing to lock up capital and commit for an extended period, direct lending offers access to an asset class with enhanced yield and downside mitigation.

. . . but for the inexperienced and PC-curious the full report is still worth a gander, with handy explanations of different market segments, common terms and what covenants are.

Though if you didn’t know already what a debt covenant is, you should probably stay well away from anything with a whiff of credit risk.

Further reading:

— Marc Rowan’s ‘great times’ private credit speech (FTAV)
— The private credit ‘golden moment’ (FTAV)
— Blackstone ❤️ private credit (FTAV)