Private debt, or direct lending, is an investment strategy where non-bank lenders (institutional investors, debt funds, insurance companies and private investors) provide loans (senior, mezzanine and other forms) to support the financing objectives and requirements of businesses, including growth, acquisitions and funding for developments.
Since the 2008 Global Financial Crisis, regulatory reforms (such as Basel III) increased costs and restricted credit appetites from bank credit committees have caused banks to retreat from certain areas of the debt market (including private companies in the small- and middle-market segment). This has been further exacerbated by the recent steep increases in global interest rates, which have caused banks to redirect internal resources away from the writing on new loans in favour of increased portfolio management.
This left a significant void in global debt markets, which is quickly being filled by private investors seeking enhanced returns. In 2019, private debt officially became the world’s fastest growing alternative asset class, having increased from $205bn in private loans extended in 2007, to $1.4tn in 2022 (source Preqin). When compared to traditional fixed income, private debt can provide investors with higher yields, portfolio diversification and lower portfolio volatility.
background to the growth of private debt
Private debt accelerated as a large and growing asset class post the 2008 Global Financial Crisis, which caused a structural shift in the supply and demand dynamics that governed lending markets at the time.
The implementation of regulatory reforms increased costs and restricted credit appetites from banks which caused them to focus on core areas of the lending market and to retreat from others, especially in respect of loans to private companies in the small and mid-market segment. According to Prequin research, global private debt currently comprises a c.$1.4tn asset class.
why invest in private debt?
Investors are increasingly looking for ways to enhance yield on cash held, which in many instances is earning a negative real return due to low (but increasing) interest rates.
At the same time, sharp global interest rate hikes have driven significant volatility in global equity markets, which have generally trended downward at this point in the cycle.
It is in this context that an increasing number of investors are turning to alternative investments – including private debt – as a potential solution to this issue.
The inclusion of a private debt investment managed by an experienced and financially aligned investment team can assist by:
- Enhancing diversification
- Reducing the level of correlation to “traditional” investment returns
- Providing predictable, yielding cash flows based on contractual income streams without the volatility caused by listed mark-to-market adjustments (e.g. bonds)
- Reducing overall risk, when compared to alternative sources of return (e.g. equities) by investing higher up in the investment capital structure
- Increasing absolute value returns relative to comparatives (e.g. fixed income)
- Potential tax efficiency
- Providing protection against inflation
who are westbrooke’s private debt
strategies best suited for?
Investors seeking stable, yielding income flows (in either ZAR or GBP)
Medium-term investment horizon*, with the ability to redeem capital within 18-24 months
Investors seeking a low-risk alternative to listed bonds or fixed income
Investors seeking to make a positive social impact, by boosting SMEs and creating jobs
our private debt funds
Westbrooke Yield Plus Plc (the Fund) is an open-ended Jersey Expert Fund which provides investors with a high-yielding, fixed income alternative investment, through a diversified portfolio of 48 predominantly floating rate private debt transactions mainly in the UK.
The Fund provides a unique investment advantage driven by an asymmetric risk / return profile, by focusing on providing loans to lower and middle-market UK companies and real estate sponsors, a significantly underserved UK market segment. In the context of a rapidly increasing interest rate environment, this allows investors to benefit from a target annual return of cash* plus 5% – 7% per annum (currently 9.2%+ on a run rate basis) in GBP (after fees and costs).
Westbrooke Income Plus (the Strategy) is a South African private debt investment strategy which aims to provide investors with an attractive cash yield in excess of that provided by traditional fixed income funds.
The Strategy is focused on the generation of a consistent cash yield which increases in line with changes in interest rates by investing in a diversified portfolio of prime-linked, secured, senior or subordinated, interest-paying credit investments.
The Strategy targets an investor return of between Prime + 1.5% – 3.0% p.a. in ZAR (net of all fees and costs), which is paid to investors on a quarterly basis.
terms and conditions
Westbrooke Alternative Asset Management is a registered financial services provider.
Westbrooke Yield Plus Plc
This page is for information purposes only and is not intended to constitute advice in any form. Any terms contained are indicative only and returns are not guaranteed. This page is not a prospectus, a prospectus for this Fund has been registered with the CIPC, and this offering is subject to the terms and conditions in that prospectus which can be obtained here. This page does not constitute an offer to sell, or a solicitation of an offer to buy, in any jurisdiction in which such offer of solicitation to sell would be unlawful.
Westbrooke Income Plus
Any terms contained are indicative only and returns are not guaranteed. Any benchmarks presented are for information purposes only and do not represent Westbrooke’s targeted returns or future performance benchmarks. To see our full disclaimer, click here.