Altify is opening up access to private credit investments, a multi-trillion-dollar asset class.

Private credit — also called “private lending” or “direct lending” — refers to loans made directly by investors to companies. It is called private credit because the debt is not issued or traded on the public markets.

Traditionally, private credit has been a core asset class in institutional, pension, and high-net-worth portfolios, but it has not been widely accessible to individual investors until now. We have overcome many barriers to bring this to our clients because of the positive impact it can have on nearly everyone's portfolio.

On Altify, you can choose to lend directly to carefully selected medium-sized companies or established private credit funds. We manage risk by selecting only those companies and funds with strong track records, institutional backing, and the resilience to withstand economic shifts.

Altify’s private credit products target up to a 14% return (net of fees). However, this return will vary with each deal.Let’s delve into this asset class and explore what it means for your portfolio.

What is Private Credit?

Private credit, also known as private lending or private debt, is a form of lending to businesses. It consists of privately negotiated loans and debt financing from non-bank lenders, including small business loans, consumer loans, venture debt, and other forms of private debt. Small businesses, start-ups, and individuals seek private credit when they cannot access public credit markets.

Borrowers use private credit for various reasons. They may not have easy access to funds through traditional financing channels, or they might prefer to work with a lender who can offer more flexible terms and faster loan processing.

As an asset class, private credit has offered 2-7% higher returns (net of fees) than public debt. However, these funds are less liquid than traditional debt products, typically allowing withdrawals only at specific times of the year. This illiquidity generally pays off with better overall returns for investors with longer time horizons.

It is suitable for investors with a 3+ year investment horizon because it comes with the risk of loss.

The Appeal of Private Credit

Investors often consider private credit as a complement to traditional options like stocks and bonds. Here's why:

1. Higher Potential Returns

Private credit investments often provide higher yields compared to traditional fixed-income investments like bonds or bank savings accounts. This is due to the higher risk associated with private credit and the illiquidity premium investors receive.

2. Diversification

Private credit investments can diversify a portfolio beyond traditional stocks and bonds. They offer exposure to different sectors and types of borrowers, reducing overall portfolio risk.

Major changes in the stock market generally do not directly affect private credit investments, leading many investors to use it for portfolio diversification.

3. Income Generation

Many private credit investments generate regular income through interest payments. These payments can be structured to provide a steady cash flow, making them attractive for income-focused investors.

4. Potential for Capital Preservation

Some private credit investments, particularly those secured by collateral or with strong borrower credit profiles, offer a measure of capital preservation relative to higher-risk assets like equities.

5. Access to Niche Markets

Private credit allows investors to access niche markets and sectors that may not be easily accessible through public markets. This can provide opportunities to capitalise on specialised knowledge or market inefficiencies.

6. Short Term Investments

Upcoming deals on Altify typically have a maturity of around 12 months.

7. Lower Average Expected Credit Losses vs. High Yield Bond Market

In public markets, the bankruptcy and reorganisation process of debt can be complex as many creditors litigate and defend their claims.

Private credit typically involves a small group of lenders providing financing to a borrower. In the event of a default, this bilateral nature can often lead to a more efficient and less costly workout process.

In a workout scenario, the strategy can better preserve and recover value as a small group of like-minded investors is more likely to agree on a restructuring plan and amended terms than a disparate group of bondholders.

Why Does Private Credit Offer Higher Yields?

The higher yield results from the private nature of these investments and the liquidity premium attached to them.

A liquidity premium is the extra return investors expect to compensate them for the risk of not being able to sell the asset quickly if they need to.

Sourcing, structuring, and managing private credit deals require significant expertise and due diligence. The complexity involved means investors expect higher returns to justify the effort and risk.

Private credit markets also often exhibit lower transparency and efficiency compared to public markets which creates opportunities for higher returns.

The Risks in Private Credit

Private credit investments, while potentially lucrative, come with several risks. These include credit risk, where loans may not be repaid; liquidity risk, where there may not be enough buyers for the loans; and redemption risk, which could delay withdrawals during periods of high demand. Other risks involve fluctuations in interest rates and exchange rates, which can affect loan values and returns. Additionally, concentration in certain sectors or regions, regulatory changes, operational failures, widening credit spreads, reinvestment fluctuations, and counterparty defaults can all impact the performance of these investments.

For those considering private credit, it's vital to undertake thorough due diligence, invest wisely, choose reputable partners, and keep a close eye on the investment environment. For more detailed information on these risks, check out the FAQ on private credit risks on the Altify private credit page.

How Does Altify Manage Private Credit Risks?

At Altify, we collaborate with leading private credit partners to effectively manage the risks associated with our private credit offerings.

Focus on Senior Secured Credit

Our partners primarily focus on senior secured credit, which offers the highest security by granting the foremost claim on a borrower’s assets in case of financial distress. This approach significantly reduces risk compared to subordinate high-yield credits or bonds and equity, which are only compensated after all debts have been settled.

Due Diligence and Expertise

To further protect investments, Altify and its partners partners' conduct thorough due diligence, focusing on sectors where they possess in-depth expertise. Although our robust credit agreements and financial maintenance covenants are designed to maintain essential financial health metrics, the inherent risks of lending to third parties are always carefully considered and managed.

Why Altify?

At Altify, we strive to make private credit investments more accessible, backed by thorough due diligence of all credit partners.

Our goal is to offer investment structures that enables you to easily and securely invest in institutional-grade private credit opportunities.

Invest in Private Credit

Consider the role of private credit in your diversified portfolio. It offers a different investment experience with its own set of features and potential returns, distinct from traditional avenues.

Apply for early access to invest in private credit with Altify here.