Private Credit
Hi There Could you pl`s explain what is private credit & is there any where a retail investor could invest funds into , a Fund or a stock at . Give us your thoughts please and point us in a direction cheers Paul M
The Latest Q&A
Answer
Hi Paul,
The term private credit just means credit not provided by a bank, so it’s loans coming from fund managers to borrowers, family offices to borrowers, or individuals lending to individuals in the purest sense. Private credit really emerged when banks stepped back from lending to riskier borrowers, or, would only lend on very conservative terms. That left a void that got filled by private credit managers, who raise money from investors, select deals to back, lend the money out, charge an interest rate, and pass the income back to the investors in the fund, taking a fee in the middle.
Low interest rates also helped, forcing investors to take more risk to get a return, and that, in MM’s view, really helped the sector. Investors were forced to look, they get comfortable with the asset class, so they stay, banking the higher returns even though they may no longer need to take the added risk when term deposits are ~5%.
The biggest private credit manager in Australia is Metrics, and the listed Metrics Master Income Trust (MXT) is a security worth looking at. We like and hold the Perpetual Credit Income Trust (PCI), which has some private credit exposure, but has the capacity to hold other fixed income securities as well. This gives them greater flexibility i.e. when private credit looks expensive for the risks involved, they can go elsewhere, where a pure private credit manager is forced to put money to work in that space.
