Welcome to Extreme Investor Network, where we provide unique insights and valuable information on investing. Today, we are discussing the current opportunities in private credit that investors should consider.
Private credit has traditionally been reserved for institutional investors, but it has gained popularity among individual investors due to its attractive yields. Leslie Falconio, head of taxable fixed-income strategy at UBS Americas’ chief investment office, highlights the benefits of private credit, including low defaults, lower leverage compared to public markets, and potential yields of 10% to 11%.
One key advantage of private credit is the availability of dry powder for investment. Despite a slowdown in M & A activity in early 2024, UBS expects private credit to continue being a significant source of funding. As Falconio and the CIO team noted in a recent report, deploying capital patiently and opportunistically can drive future performance in this asset class.
Investors can access private credit through closed-end funds, which offer less liquidity than open-end funds. While some funds have high minimum investment requirements, others, like the Blackstone Private Credit Fund and Franklin BSP Private Credit Fund, offer lower barriers to entry with attractive distribution yields.
When choosing a private credit fund, Falconio advises investors to be selective and opt for established funds with a track record, infrastructure, and experienced management teams. Avoiding smaller, newer entrants can mitigate risks associated with this asset class, as highlighted by JPMorgan CEO Jamie Dimon’s caution about the potential risks of less-established players in private credit.
Another way to gain exposure to private credit is by investing in business development companies (BDCs) that provide private lending. While BDCs offer attractive yields, they come with higher risks. Investors can also consider the VanEck BDC Income ETF for broad diversification to the sector, although it comes with a high expense ratio and yield.
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