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.
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.$887bn asset class (with c.$118bn of this having been raised in 2020 alone), making private debt the third largest alternative asset class in the world.
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 historically low interest rates. At the same time, equity valuations in many markets are at all-time highs, leading to fears that investment returns will be muted for years to come. 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 is an open-ended Jersey Expert Fund which provides investors with a high-yielding, fixed income alternative investment, through a diversified portfolio of 38 private debt transactions predominantly in the UK.
The Fund delivers an asymmetric risk / return profile to investors, by focusing on providing loans to lower and middle-market UK companies and real estate sponsors, a significantly under-served UK market segment. This allows investors to benefit from a target annual return of cash* plus 5% – 7% per annum in GBP (after fees and costs).
Westbrooke Income Plus is a South African private debt investment strategy which provides investors with an attractive cash yield in excess of that provided by traditional fixed income funds.
The Fund is focused on the generation of a consistent cash yield by investing in a diversified portfolio of secured, senior or subordinated, interest-paying credit investments. The Fund targets an investor return of between Prime + 1.0% – 3.0% p.a. (net of all fees and costs), which is paid to investors on a quarterly basis.