In general terms, private debt refers to credit asset classes granted by non-banking financial institutions which normally come in the way of loans. As they are not securities and cannot be traded in organized markets these instruments tend to be “to buy and hold” over time through special purpose vehicles. On the more liquid side trading takes place in OTC markets.
There are different asset subclasses in the private debt market such as:
Private debt market is becoming an excellent way for institutional investors to protect themselves against the current low interest rate environment and structural changes in the fixed income market. For this reason investors are shifting their investment strategy into the alternative credit market to obtain a higher yield, better diversification and lower risk than the offered by traditional asset classes. There are different factors that are causing the remarkable increase in the demand of private debt assets:
Insurance companies and pension funds are finding it difficult to hit their target returns due to the low yields from traditional fixed income investments. Their capacity to increase risk tolerance is limited by their liabilities and, in the case of insurance companies, by capital requirements.
Structural changes in the bond market, including liquidity reduction and an increase in correlation with other assets, is changing the way investors assess liquidity and risk. Long term investors capable of buying and holding are ready to swap liquidity in exchange for higher returns. This illiquidity premium is making the private debt market more attractive.
Banks have been reducing their exposure to the mid-market after decades of consolidation in the sector as a response to the higher consumption of capital required for the concession of loans to mid-market companies.
Additionally the historical behavior and risk and return features of the private debt market make it attractive. Some of its advantages are:
than that offered by other debt assets with similar rating to compensate the lower liquidity.
recovery ratios compared to high yield bonds due to strict covenants, supervision and collateralization.
to low correlation to other assets.
that acts as a hedge against rising interest rates and inflation.
As part of Altamar Capital Partners multi-asset class strategy, Altamar Credit was created to give investors exposure to the alternative credit market. It is launching its first fund Altamar Private Debt I, which is focused on offering exposure to liquid and illiquid credit markets simultaneously. It aims to generate an attractive return in terms of relative value and prevailing capital preservation through an exhaustive investment selection process across diversified portfolio of (I) Direct Lending closed funds and (II) Senior Loan liquid funds. The geographical focus of APD I investments will be Western Europe with a limited exposure to the U.S.