As institutional investors continue to turn toward private debt for potentially attractive risk adjusted returns in a low-yielding environment, they may benefit from taking a global approach to the asset class.
Private debt continues to gain favour as yield-hungry investors look for solutions to help meet their portfolio return targets. Institutional investors in particular are often drawn to private loans for the potential to earn incremental yield relative to broadly syndicated markets. As private debt has become a more common element of institutional portfolios, investors may benefit from allocating to managers that cast a wider net when looking at investment opportunities.
The direct lending market offers investors a range of attractive potential benefits, including:
- Potential return premium versus broadly syndicated markets
- Conservative structures and loan documents with strong investor protection
- Investment diversification
- Access to a broad universe of investment opportunities
- Limited correlation to public markets
There are some key potential advantages to taking a global approach to private debt. For one, investing globally significantly increases the opportunity set of potential private loan investments, which can allow managers to invest more selectively. This is an important point because the relative value of private debt investments in each region shifts from time to time depending on market dynamics, such as the demand for debt capital by private equity funds and the supply of debt capital from both banks and unregulated institutional lenders.