What is Private Credit?

by Sound Choices, AGF Management Ltd.

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Insights and Market Perspectives

Author: Sound Choices

June 6, 2021

The act of a private lender extending debt capital to a borrower is a financial service that has existed for thousands of years.

However, private credit, as an asset class, has only emerged over the last 20 years as an alternative or compliment to traditional fixed income and an important source of yield.

Defining Private Credit

Broadly speaking, private credit or private debt (used interchangeably) typically refer to debt investments that are not financed by banks and are not issued or traded in an open market. At its core, private credit is any non-bank lending activity.

Private Credit Refers to the Lender, Not the Borrower

It’s important to note that the term ‘private’ refers only to the entity providing the debt and not to the borrowing entity, which could be publicly listed or privately held.

Similarities to Traditional Debt

Like traditional forms of debt capital, private credit is typically used by borrowers to obtain capital for purposes such as:

  • financing business expansion activities
  • working capital needs and infrastructure
  • funding infrastructure or real estate development

How Private Credit Differs from Traditional Debt

Unlike traditional forms of debt capital, private credit loans feature attractive structuring elements that, when compared to other sources of capital, are highly customizable, secure and, in the current interest rate environment, typically attract a relatively higher interest rate.

Currently, over 70%* of the investor capital flowing into private credit comes from institutional investors, but availability is increasing with the introduction of publicly traded business development companies and closed-end funds focused on private credit opportunities.

To find out more about private credit, please speak to your financial advisor or visit AGF.com.

*Source: “Financing the Economy 2018″ Alternative Credit Council. https://www.aima.org/educate/aima-research/fte-2018.html.

The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.
AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.
TM The “AGF” logo and ® “Sound Choices” are registered trademarks of AGF Management Limited and used under licence.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2021 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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