What Exactly Is The Private Credit Market?

The Private Credit Market is one of the fastest-growing asset classes present in the market today. It is also known as ‘Direct Lending ‘or ‘Private Lending ‘. It is defined by non-bank lending and the debt is not listed on the public markets.

To give you more clarity, here are a few things you might not know about private equity -

• The rate of returns

There are many different strategies that are used to invest in the private credit market. While the average rate of return among all private market investment strategies has been 8.1% IRR, a selected few high-performing strategies have yielded a magnificent return of 14% IRR. This gets even better as the majority of companies now prefer to acquire debt from non-bank lenders due to the lenient requirements.

1. The acquirement of the capital

The majority of the private credit capital comes from institutional investors. BDCs or Business Development Companies are one of the major contributors to the same as they are required to invest at least 70% of their assets in non-public companies that are valued at less than $250 million. BDCs usually lever their equity with debt and are not taxed if they give away 90% or more of their income to their investors.

• Types of private credit

Private credit is usually of 6 types, distressed debt, direct lend, mezzanine, real estate, special situation funds, and infrastructure.

• Benefits

Private credit is quite a major contributor to the private markets and accounts for 10% to 15% of the total assets that are under management. In fact, many of the medium-sized enterprises present in the market today have some or the other form of debt. Investing in the private credit market is a low-risk approach to private equity and asset diversification.

I hope this answer helps you understand what exactly is the private credit market.

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