Private credit has its dangers — caveat emptor

Posted by TEBI on September 26, 2023

Private credit has its dangers — caveat emptor



Private credit is an asset class that’s very much in vogue. The global private credit market has now exceeded $1.5 trillion. Those who earn fees from it are understandably enthusiastic about it. But, as ROBIN POWELL explains in his latest article for Timeline, private credit has its risks, and investors should go into it with their eyes wide open.



Most investors will at least have heard of private equity. But less well-known is a related asset class called private credit, or private debt.

Like private equity, private credit focuses on opportunities outside the public markets, but deploys its capital in the form of credit rather than taking equity stakes in businesses. It includes a range of strategies, including direct lending for leveraged buyouts and lending to distressed businesses.

Despite its lower profile, private credit is, in some countries, growing even faster than private equity. The Financial Times recently called it “the investment industry’s hottest neighbourhood”. But, as regular readers of this blog will know, the fact that an asset class is hot is often a very good reason for not including it in your portfolio.

So is now a good time to be investing in private credit? Well, let’s start with some historical background.




ROBIN POWELL is the editor of The Evidence-Based Investor. He works as a journalist, author and consultant specialising in finance and investing. He is the co-author of two books, Invest Your Way to Financial Freedom and How to Fund the Life You Want, and his company Regis Media provides high-quality video content for advice firms and other financial businesses.



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