Whether you’re new to investing or know a thing or two, there’s a lot to discover.
One of the things you’ll have heard is the importance of a diverse portfolio. Having a wide range of investments can help manage the ups and downs of individual sectors.
At FC Capital, private debt and alternative investments are our speciality. Thanks to managed funds such as those offered by us, it is also a highly accessible asset class, and could help to build your wealth even if this is your first investment in this sector.
I am new to private debt
What is a private debt investment?
Private debt refers to loans that are typically made by a non-bank lender, such as FC Capital as opposed to a bank or public markets. Companies typically access private debt to finance growth, expand their working capital, or fund real estate development.
Private debt returns are achieved by investing in agreed, contractual streams of cash flows, returns are more or less locked in at the time of purchase. Depending on the type of loan, risk mitigating structures can also be put in place to further reduce downside risk, such as recourse agreements, which essentially allows the lender (FC Capital) to pursue additional assets should the borrower default their covenants.
As debt is a lower-risk asset class than equity, effectively providing capital stability.
Advantages/Risks of Private Debt
Advantages
Low correlation
Private debt investments rely on a defined stream of principal and interest payments, as opposed to public market fixed income investments whose values fluctuate in part with changes in sentiment, interest rates and macro-economic influences. Because they are uncorrelated with traditional asset classes, private debt as an investment is a valuable tool for diversifying investment portfolios.
Income earning element
Private debt investments rely on a defined stream of principal and interest payments, received from borrowers at specified intervals under the binding terms of their debt contract. A floating base rate, with additional credit margin, ensures total interest income rises in line with upward movements in market interest rates when interest rates rise as a means of combating inflating pressure, essentially acting as an ‘inflation hedge’.
This contrasts with dividends that are paid to equity holders at a company’s discretion. Even when equity markets were at their most turbulent in early 2020, and many companies were suspending or reducing dividends, well managed private debt funds continued to deliver consistent monthly income for investors.
Capital stability
In a private market, lenders negotiate directly with borrowers. A skilled lender/private debt manager will seek to negotiate with the borrower appropriate terms and conditions, controls, reporting obligations, covenants, and security to ensure the lender has greater influence on loan terms seeking to mitigate potential risk of loss. Covenants and ongoing borrower reporting obligations are negotiated and provide protection and early warning of changing risks. Security held over the borrower ensures the rights and protection of capital ranks in priority to shareholder equity and any unsecured creditors.
Diversification
Private debt provides a low correlation with other major asset classes, including growth assets such as equities and property, as well as other fixed income products such as bonds, providing excellent diversification opportunities.
Because they aim to deliver reliable income and capital stability throughout the economic cycle, they can be an asset to your portfolio when other markets are volatile.
Disadvantages
Lack of liquidity
Investors in private credit must be willing to hold their investments until maturity. Whereas traditional fixed income investors can count on liquidity because of the market for government and corporate bonds, private credit investments do not offer this flexibility.
Investing in a direct private debt fund
Here, individuals contact a fund manager such as FC Capital about their funds open to investment and choose one that is suitable.
What is a managed account?
A vehicle sub-advised by FC Capital whose role is limited to the right to make investment decisions on behalf of an investor. Investors are the beneficial owner of the portfolio as opposed to limited partnership interests in a pool of holdings.
Investors have full transparency of the portfolio being managed. Due to the operational and logistical difficulties of this arrangement, a sizeable capital commitment is required from investors in order to open a managed account.
I have invested in Private debt
You have heard about the importance of a diverse portfolio and would like to learn more about investing with us
I am an existing investor
As an existing investor, you need more information about our funds and opportunities
A wholesale or sophisticated investor is someone who is classified as having sufficient financial knowledge, understanding and capital to participate in wholesale markets and investment opportunities.
Under the Corporations Act introduced in 2001, to be classified as a wholesale or sophisticated investor a client must either have $250,000 in annual income or $2.5 million of net assets.
All information on this page is of a general nature only. For specific advice relating to your needs, please speak with a financial adviser.
DISCLAIMER
This website provides general information only. It does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making investment, financial, taxation or other decisions, and you should consider its appropriateness with regard to these factors before acting on it. The issuers of the products within this website can be found in the relevant disclosure document. Read the disclosure documents for your selected product before deciding. Any taxation information described is a general statement and should only be used as a guide. Before making an investment decision, you should seek independent financial or taxation advice and consider whether an investment is appropriate in light of your particular investment needs, objectives and financial circumstances.