Private Credit: A Multi-Trillion-Dollar Industry Amidst Rising Rates and Inflation - The Average Joe

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    Private Credit: A Multi-Trillion-Dollar Industry Amidst Rising Rates and Inflation

    victorlei

    December 8, 2023

    Interest rates have reached their highest point in over 22 years, and investors expect them to stay higher for longer. Coupled with rising inflation, investor returns have taken a bit of a hit in recent years.

    However, private credit is one asset class that has continued to boom in this environment. Private credit involves loans negotiated directly between the lender and borrower, typically without the involvement of a bank.

    • Apollo’s Co-President James Zelter is seeing “unprecedented returns” and “never expected credit to have the kinds of returns” seen right now.
    • Blackstone’s COO called it a “golden moment” for the private credit industry — generating returns as much as 20% APY.

    Decades of explosive growth: In the early 2000s, the industry was relatively small and mostly focused on lending to businesses that had difficulty accessing traditional bank financing.

    But over time, private credit funds expanded to all sorts of businesses and industries. And since then, money has flooded the industry as investment funds ramped up their credit operations.

    • Since 2015, the private credit market has tripled to $1.5T, and Apollo Global Management thinks it could grow another $40T.
    • Credit has become one of the fastest-growing businesses for the world’s largest alternative asset manager, Blackstone.

    Acceleration in recent years…

    In 2023, the size of private credit deals have broken records, with the total number of private credit deals expected to reach another all-time high. And bank failures this year have forced financial institutions to tighten lending standards, making borrowing more difficult — pushing more companies towards borrowing from private credit funds.

    Why are they so attractive to institutional investors?

    • Higher APYs: They can command higher rates compared to bank loans.
    • Lower volatility: These deals are usually largely uncorrelated from public market performance.
    • Income-generating: Offers the potential for passive income, often on a monthly basis throughout the deal’s lifespan.

    Nothing is without risk: One concern in the industry is how these loans will hold up in a longer recession. Michael Arougheti, the CEO of Ares, one of the largest private credit funds, said in a CNBC interview that he expects “default rates to tick up but not to dangerously high levels.” Diversification becomes crucial in the face of such uncertainties — and one platform is looking to make it easier to diversify into different private credit deals.

    Adding private credit to your portfolio

    While historically limited to large institutional investors, access to private credit is changing with Percent, a platform exclusively dedicated to private credit and making it available to everyday accredited investors. Since 2018, they’ve financed over $936M across 495+ deals.

    Investors on the platform can browse a variety of private credit investments across different industries — whether it’s corporate loans, farmland financing or real estate debt.

    Through Percent, accredited investors have access to:

    • APY: An average of 18.72% as of Nov. 30, 2023.
    • Low minimums: Start investing with as little as $500.
    • Welcome bonus: Earn up to a $500 bonus after making your first investment.
    • Shorter-term investments: Many deals have durations between nine months and several years, with some offering liquidity after the first month.
    • Income generating: Potential for passive income, often monthly, throughout the deal’s lifetime.

    Sign up for an account to start browsing all deals available on their platform.

    Invest in private credit deals with Percent

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