Dive into our latest report on Private Debt - and why now is a compelling moment for the asset class as a source of stable income and as a diversifier in portfolios.
Dive into our latest report on Private Debt - and why now is a compelling moment for the asset class as a source of stable income and as a diversifier in portfolios.
With global markets under pressure from geopolitical conflicts, U.S. tariffs, recession fears, and persistent public market volatility, investors are facing one of the most uncertain environments in recent years. In this climate, Private Debt stands out as a resilient and strategic solution– providing consistent, compounding, contractual income. While typically less liquid than public fixed income, this illiquidity can be a key source of enhanced yield and downside protection.
Short-term dislocation creates entry opportunities in Private Debt
Against the backdrop of global investor uncertainty, market dislocations are opening the door to attractive entry points for selective capital deployment by Private Debt investors:
Volatility drives debt repricing: The U.S. tariff escalation has caused repricing in debt markets. These dynamics allow investors to access quality assets at better terms.
Private lenders bridge the funding gap: As banks retreat due to regulatory/macro pressures, Private Debt funds become primary lenders to the middle market, enabling favourable terms.
Floating-rate loans mitigate inflation risks: Most Private Debt structures are floating-rate, allowing interest to rise with base rates. This provides investors with a built-in inflation hedge.
While dislocation is creating opportunities for private lenders, investors should remain mindful of near-term risks such as slowing growth, rising input costs, and market illiquidity. Yet these very dynamics also set the stage for structural, medium- to long-term advantages of Private Debt.
Medium- to long-term fundamentals reinforce case for Private Debt
Long-term characteristics make Private Debt a resilient and essential portfolio component:
High, contractual cash income beyond public debt
Growing market opportunity given structural tailwinds from bank retrenchment
Crisis resilience and portfolio diversification
1. High, contractual cash income beyond public debt
Historically (between 2001 and 2021), Private Debt has consistently delivered higher total returns and stronger cash income than public debt, while maintaining lower volatility and drawdown risk. These dynamics underscore its value as a defensive, income-generating asset class for investors across the globe.
2, Growing market opportunity given structural tailwinds
Private Debt has grown significantly in the last two decades compared to other (public) debt assets. This shift has been accelerated as traditional banks reduce their lending exposure, particularly towards middle-market borrowers due to banks’ rising capital requirements, protectionist policies, and growing exposure to geopolitical risks.
3. Crisis resilience and portfolio diversification
Private Debt has historically had a stabilizing impact on portfolios. The asset class has been significantly less affected by market turbulence and downturns, as seen during the 2008 global financial crisis as well as during the (post-)covid period in 2020/2022. Private Debt is consequently often used by investors as a tool to ensure downside protection and increase portfolio diversification.
In short: Why is now the right time to invest in Private Debt?
Income stability
Private Debt offers predictable, stable cash flows at a time when public markets are fluctuating.
Lending opportunities in liquidity crunch
As banks retreat from certain lending activities, private lenders fill the gap (strong pricing power).
Defensive structure and seniority
Private Debt often entails conservative structures (senior secured), offering protection in downturns
Attractive floating-rate structures
As rates decline, Private Debt compels given floating-rate structures (continued strong yields).
Want to know more about Private Debt or iAccess Partners?
Newsletter Review | October 2024: How Private Equity Firms Use Add-on Acquisitions To Create Excess Returns
In our newsletter review for October 2024, we dive into the value of add-on acquisitions for Private Equity firms to generate excess returns for their investors.
How Private Equity Firms Use Add-on Acquisitions To Create Excess Returns
Newsletter Review | October 2024
Add-on acquisitions represent 70% of total Private Equity deal count
The strategy of add-on acquisitions has become increasingly prevalent for driving significant growth in portfolio companies. These acquisitions provide a flexible approach for funds to achieve higher valuations for investors at exit:
Main objectives of add-on acquisitions
Capture synergies
A portfolio company can achieve revenue growth through add-on acquisitions by cross-selling compatible products to customers and expanding into new markets, while also realizing cost reductions through economies of scale, which lower production costs at higher volumes.
Achieve higher valuations
Since add-on acquisitions can significantly enhance a company's future organic growth potential, a well-executed add-on strategy can lead to operational improvements and ultimately to increased EBITDA and a higher valuation for investors at exit.
60% of modern value creation in Private Equity is linked to operational improvements
Research from UBS and EY shows that 60%of modern value creation in Private Markets is linked to operational improvements. Fund managers who actively focus on developing portfolio companies to their fullest potential throughout the investment life cycle create the greatest value.
