There have been many consequences of the collapse in global interest rates since the financial crisis, but few are as compelling – or will be as permanent – as the influx of investor capital into privately-held businesses in the U.S., often referred to as “private credit” or “direct lending”. As the amount of leverage has increased, making the risk profile of high yield bonds worse, so too has the yield/return reduced. This double negative impact has resulted in many foreign high net worth and institutional investors seeking better capital protection and income from private credit as a fixed income alternative, but as private credit has become more mainstream, the flow of capital into the plainer vanilla strategies has changed many of their risk-reward characteristics for the worse. As a result, increasingly sophisticated foreign investors are now seeking more differentiated private credit investment strategies, where superior risk-adjusted returns can be found.

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