Hamilton Lane - Fri, 03/03/2023 - 17:28

Hard to Ignore: Risk/Return Profiles of Private Credit and Senior Private Credit

What you should know

  • Private credit strategies, including senior private credit, are loans, bonds or other credit instruments that are privately issued by companies or through private offerings.
  • Private credit strategies offer a range of benefits, including diversification, potentially higher yields, downside protection and, for senior private credit specifically, historically strong recovery rates.
  • Senior private credit sits higher in the capital structure than other private credit instruments – which translates to more protections for investors.

The size of the private debt market currently stands at an estimated $1.2 trillion. And with private credit AUM increasing over 10% annually for the past decade, Hamilton Lane believes that the opportunity for future investment remains robust.1

But there’s more than the size of the private credit markets that has captured investors’ attention. The increase in the number of private credit strategies means there are more options than ever to help investors balance the tradeoffs between risk and return. These are strategies that offer potentially higher yields versus traditional credit vehicles, downside protection, attractive covenant protections (i.e., senior credit) and more.

With the growing interest in private credit, many investors are asking, “What can private credit do for my portfolio?” To answer this question, we’ve outlined the key characteristics that make senior private credit unique relative to other private credit strategies, along with the importance of market data when building portfolios.

1 Source: Preqin as of September 2021

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