I’m on the hunt for more private debt to invest in. While I would love to mail it in and buy an investment grade debt index, the current yield is roughly 2.5%, hardly interesting given inflation. If inflation is ~5%, that’s a -2.5% real yield.
Private / alternative debt is surely more risky than investment grade debt. The principal driving force is smaller companies that on average have higher default risk:
The compensation for the risk is material, the question of is it enough lingers:
The key thing here is thinking about the end market. In my prior post, the end market was high FICO individuals. In this case it is smaller, often PE backed, businesses. While in some cases there may be solid asset coverage – my guess is in most cases material business deterioration results in impairment of these loans despite being senior secured.
Here’s the breakdown of another supposed debt vehicle (but has a reasonably large equity sleeve, both in tradable securities and real estate equity):
Alas, the hunt continues for lower risk alternatives.