Direct Lending: One Arrow in the Private Credit Quiver
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How can RIAs avoid missing the mark when it comes to private market investments?
The past several years have been characterized by a rising interest in private investments. The burgeoning enthusiasm in the registered investment advisor (RIA) community can be attributed to investors' increasing appetite for attractive risk/return and diversification opportunities, making private credit a resilient shield against the turbulent tides of market volatility and inflation.
The catalyst for this shift can be traced back to the prolonged period of historically low interest rates, which spanned a remarkable 15 years. During that time, traditional fixed-income investments performed poorly, as yields dwindled, lingering close to zero in many cases. Today, the landscape is very different, due in part to the Fed’s campaign to combat inflation by raising interest rates. The liquid bond markets have come alive with significantly higher yields, exemplified by the 10-year U.S. Treasury bond that returns approximately 4.5%. The winds of change are palpable, but the landscape is not without its challenges.
Traditional lenders, grappling with the dynamic financial climate, are increasingly tightening lending standards and wrestling with balance sheet issues. This has created a favorable backdrop for private credit lenders to secure attractive terms – in some cases offering returns in the double digits.