The current market volatility and mounting economic anxiety, fuelled by the combination of post-coronavirus global inflation, rising interest rates, extensive lockdowns in China and the war in Ukraine, are substantially affecting investors’ outlooks.
It seems unlikely that the return drivers of the previous decade will generate outsize returns for the next decade.
With traditional public markets failing to produce expected returns, we have observed increasing investor interest in alternative strategies, particularly in private credit.
A range of fixed-income instruments with differing return profiles sit under the private credit umbrella. Private credit strategies can either be bond-like or equity-like.
We believe this diversity makes private credit a potential opportunity for investors with varying risk appetites and portfolio objectives.
Senior direct lending makes up much of the private credit market today. This form of direct lending is “senior” as holders are prioritised for repayment in the event of a default.
Direct lending is used to finance middle-market businesses (typically, private equity sponsors use direct loans to finance acquisitions).
Additional types of private credit include real estate loans, “special situations” and other niche, specialised credit strategies.
Private credit is now easier to access
While private credit is not the most well-known asset class, it has expanded in the past decade, driven by increased demand from investors and borrowers, and now approaches the size of some public fixed-income markets.
Private credit yields are usually higher, due in large part to restrictions imposed during the 2008 global financial crisis. Private market borrowers are compelled to pay higher rates as they lack liquidity and are unable to acquire bank loans.
Large institutions were early to the private credit market, seeking higher yields when they were not available in traditional (public) fixed-income markets.
Now that the market is larger, more established and easier to gain access to, we have observed rising demand from private borrowers as well.
Higher returns and income generation
Traditionally, investors have relied on bonds and loans to generate income. However, bond yields, although rising, remain historically low.
Direct lending has historically been characterised by stable, forecastable income flows. Additionally, it also has a relatively lower risk profile than other types of private credit, with lower returns.
Lenders have a priority for repayment with “senior” direct lending and loans are frequently secured.
Direct loans typically pay floating-rate coupons, although with “floors” in low-rate environments. These features have helped direct lending to generate more favourable returns, with greater consistency than other kinds of debt.
Funds that hold these assets typically add leverage (invest with borrowed funds), increasing return potential as well as risk.
Since there is less transparency in private credit than in public bond markets, managers must have strong credit research and underwriting capabilities to select high-quality companies.
Special situations and distressed credit
If you are seeking to potentially enhance returns, have a higher risk tolerance and want an alternative for equities — or diversify your equities exposure — consider special situations and distressed credit.
Similar to “buying low” in equities, here deeply discounted, “stressed” debt may be purchased from a current owner or a high-interest loan may be issued to a distressed company.
Occasionally, the lender anticipates acquiring ownership when the company’s value has risen. While a company regains its footing, distressed credit may take the shape of a “bridge loan” or another bespoke solution.
Contrary to senior direct lending, which has the lowest risk-to-return ratio, special situations and distressed credit strategies seek higher absolute returns via increased risk, in the security and/or the company.
Distressed credit may be “junior” (lower in priority for payback).
Generally, special situations and distressed borrowers are going through a transitional phase and need capital. Perhaps the company experienced challenges related to the Covid-19 pandemic or the management made mistakes.
These strategies frequently lack a current income or yield component (although some do). Investors take this into account and seek to build in compensation, structuring the credit to have a higher total return.
Mitigating risks
Private credit is less transparent than bonds and is not rated by credit rating agencies. As interest rates are adjustable with market rate conditions, borrowers may be strained when market rates rise, as is the case with many other debt instruments.
For investors, holding floating-rate credit when rates are rising should prove beneficial.
If private credit matches your requirements and investing goals, all these qualities make it a compelling opportunity.
Steven Rees is the head of investments for the Mena region at JP Morgan Private Bank
Match info
Manchester United 1
Fred (18')
Wolves 1
Moutinho (53')
Museum of the Future in numbers
- 78 metres is the height of the museum
- 30,000 square metres is its total area
- 17,000 square metres is the length of the stainless steel facade
- 14 kilometres is the length of LED lights used on the facade
- 1,024 individual pieces make up the exterior
- 7 floors in all, with one for administrative offices
- 2,400 diagonally intersecting steel members frame the torus shape
- 100 species of trees and plants dot the gardens
- Dh145 is the price of a ticket
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Stamp%20duty%20timeline
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How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
Britain's travel restrictions
- A negative test 2 days before flying
- Complete passenger locator form
- Book a post-arrival PCR test
- Double-vaccinated must self-isolate
- 11 countries on red list quarantine
Dolittle
Director: Stephen Gaghan
Stars: Robert Downey Jr, Michael Sheen
One-and-a-half out of five stars
Related
MATCH INFO
Manchester City 4 (Gundogan 8' (P), Bernardo Silva 19', Jesus 72', 75')
Fulham 0
Red cards: Tim Ream (Fulham)
Man of the Match: Gabriel Jesus (Manchester City)
Friday's schedule at the Etihad Airways Abu Dhabi Grand Prix
GP3 qualifying, 10:15am
Formula 2, practice 11:30am
Formula 1, first practice, 1pm
GP3 qualifying session, 3.10pm
Formula 1 second practice, 5pm
Formula 2 qualifying, 7pm
SPECS
%3Cp%3EEngine%3A%20Supercharged%203.5-litre%20V6%0D%3Cbr%3EPower%3A%20400hp%0D%3Cbr%3ETorque%3A%20430Nm%0D%3Cbr%3EOn%20sale%3A%20Now%0D%3Cbr%3EPrice%3A%20From%20Dh450%2C000%0D%3Cbr%3E%3C%2Fp%3E%0A
COMPANY%20PROFILE
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THE CLOWN OF GAZA
Director: Abdulrahman Sabbah
Starring: Alaa Meqdad
Rating: 4/5
Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
Mobile phone packages comparison
Company Profile
Company name: OneOrder
Started: October 2021
Founders: Tamer Amer and Karim Maurice
Based: Cairo, Egypt
Industry: technology, logistics
Investors: A15 and self-funded
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'The Ice Road'
Director: Jonathan Hensleigh
Stars: Liam Neeson, Amber Midthunder, Laurence Fishburne
2/5
Company info
Company name: Entrupy
Co-founders: Vidyuth Srinivasan, co-founder/chief executive, Ashlesh Sharma, co-founder/chief technology officer, Lakshmi Subramanian, co-founder/chief scientist
Based: New York, New York
Sector/About: Entrupy is a hardware-enabled SaaS company whose mission is to protect businesses, borders and consumers from transactions involving counterfeit goods.
Initial investment/Investors: Entrupy secured a $2.6m Series A funding round in 2017. The round was led by Tokyo-based Digital Garage and Daiwa Securities Group's jointly established venture arm, DG Lab Fund I Investment Limited Partnership, along with Zach Coelius.
Total customers: Entrupy’s customers include hundreds of secondary resellers, marketplaces and other retail organisations around the world. They are also testing with shipping companies as well as customs agencies to stop fake items from reaching the market in the first place.
MATCH INFO
Quarter-finals
Saturday (all times UAE)
England v Australia, 11.15am
New Zealand v Ireland, 2.15pm
Sunday
Wales v France, 11.15am
Japan v South Africa, 2.15pm
Company profile
Name: Steppi
Founders: Joe Franklin and Milos Savic
Launched: February 2020
Size: 10,000 users by the end of July and a goal of 200,000 users by the end of the year
Employees: Five
Based: Jumeirah Lakes Towers, Dubai
Financing stage: Two seed rounds – the first sourced from angel investors and the founders' personal savings
Second round raised Dh720,000 from silent investors in June this year
THE LOWDOWN
Romeo Akbar Walter
Rating: 2/5 stars
Produced by: Dharma Productions, Azure Entertainment
Directed by: Robby Grewal
Cast: John Abraham, Mouni Roy, Jackie Shroff and Sikandar Kher
Try out the test yourself
Q1 Suppose you had $100 in a savings account and the interest rate was 2 per cent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a) More than $102
b) Exactly $102
c) Less than $102
d) Do not know
e) Refuse to answer
Q2 Imagine that the interest rate on your savings account was 1 per cent per year and inflation was 2 per cent per year. After one year, how much would you be able to buy with the money in this account?
a) More than today
b) Exactly the same as today
c) Less than today
d) Do not know
e) Refuse to answer
Q4 Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
a) True
b) False
d) Do not know
e) Refuse to answer
The “Big Three” financial literacy questions were created by Professors Annamaria Lusardi of the George Washington School of Business and Olivia Mitchell, of the Wharton School of the University of Pennsylvania.
Answers: Q1 More than $102 (compound interest). Q2 Less than today (inflation). Q3 False (diversification).
Teams in the EHL
White Bears, Al Ain Theebs, Dubai Mighty Camels, Abu Dhabi Storms, Abu Dhabi Scorpions and Vipers
Who is Mohammed Al Halbousi?
The new speaker of Iraq’s parliament Mohammed Al Halbousi is the youngest person ever to serve in the role.
The 37-year-old was born in Al Garmah in Anbar and studied civil engineering in Baghdad before going into business. His development company Al Hadeed undertook reconstruction contracts rebuilding parts of Fallujah’s infrastructure.
He entered parliament in 2014 and served as a member of the human rights and finance committees until 2017. In August last year he was appointed governor of Anbar, a role in which he has struggled to secure funding to provide services in the war-damaged province and to secure the withdrawal of Shia militias. He relinquished the post when he was sworn in as a member of parliament on September 3.
He is a member of the Al Hal Sunni-based political party and the Sunni-led Coalition of Iraqi Forces, which is Iraq’s largest Sunni alliance with 37 seats from the May 12 election.
He maintains good relations with former Prime Minister Nouri Al Maliki’s State of Law Coaliton, Hadi Al Amiri’s Badr Organisation and Iranian officials.
The specs
Common to all models unless otherwise stated
Engine: 4-cylinder 2-litre T-GDi
0-100kph: 5.3 seconds (Elantra); 5.5 seconds (Kona); 6.1 seconds (Veloster)
Power: 276hp
Torque: 392Nm
Transmission: 6-Speed Manual/ 8-Speed Dual Clutch FWD
Price: TBC
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