Private debt is a particularly attractive private credit asset class, following a decade of consistent growth averaging 13.5% annually.
Some forecasts predict private debt will accelerate to a compound annual growth rate (CAGR) of 17.4% between 2022 and 2026, making it the second-largest private capital asset class by 2023.
What is Private Credit?
Emerging from the global financial crisis, private credit found a market by meeting the demands at both ends of its business—providing liquidity to growing private companies and delivering reliable yields for its limited partner (LP) investors.
The key to private credit’s growing popularity is its ability to offer LPs low volatility and fixed-income returns that have traditionally outperformed public markets. It also brings considerable diversification benefits to larger multi-asset class portfolios.
Not all private credit funds are the same, however. When exploring options for private credit funds for your portfolio, there are several things to watch out for:
1. Level of Transparency
While in the mutual fund industry, visibility into a fund’s performance is standard, private credit funds can be more obscure. When considering investment into a private credit fund, ask the following questions:
- Can I get quarterly reporting on my private credit assets?
- How are these reports presented?
- Are the reports showing me transparent data from the companies in my portfolio?
- Are insights provided alongside data?
Montfort is notable for its transparent approach. Unlike many other private credit managers, it provides detailed quarterly reporting, including granular insights into the individual assets in the fund.
2. Low Rate of Losses
Losses happen. A good private credit fund will actively monitor its portfolio companies’ performance and take proactive steps to intervene if indicators of loss are uncovered.
Montfort uses its proprietary Active Credit Monitoring process to automate the collection of data from its portfolio where it is reviewed monthly by its credit team. If signs of imminent loss are uncovered, Montfort works with the portfolio company to find a solution to prevent or reduce the loss. As a result, Montfort can better manage credit losses and maximize returns to investors.
Montfort’s subsidiaries all currently focus on direct lending to private companies, one of the lowest risks of all classes of debt, according to Preqin.
3. Returns Aligned to Private Credit Strategy
Not all private credit asset classes have the same level of returns. When exploring private credit options, consider the following:
- What private credit funds are of interest to your clients?
- What is an appropriate return for that fund class?
For example, private credit funds that lend to the technology sector will have a higher rate of return than funds investing in renewable energy. However, your clients may want renewable energy as part of their investment portfolio and are happy to accept a lower return from that.
New Private Credit Options for Financial Advisors
Montfort provides investors with access to private credit as an alternative investment opportunity. By managing a diverse group of private lending companies operating in underserved market segments, we achieve outsized risk-adjusted returns and provide a transparent investor experience.
Montfort’s mission is to create value for investors by leveraging its tech-enabled lending platform to provide founder-friendly capital to growing businesses in underserved market segments through its growing group of diverse investment companies including TIMIA Capital and Pivot Financial.
Montfort is unique in that it provides private credit investment opportunities to institutions and individuals, effectively democratizing the space.
If you’re interested in learning more about investment opportunities with Montfort, contact the team.
Andrew Abouchar is the Chief Financial Officer Montfort Capital.