Low interest rates have resulted in investors looking further afield for fixed income style returns. Traditional domestic high grade corporate debt no longer provides the yield cushion it once did.
Concurrently, as a result of increased regulation and the Global Financial Crisis, traditional banking institutions have stepped away from lending to certain areas of the credit market. As a result, new non-bank entrants have entered the market to lend to these sub asset classes. These new entrants have generally delivered higher yields than traditional fixed income with generally reduced liquidity.
The risks are higher within private loan investing. The major risk is that of increased unexpected loan defaults. The risk of default generally comes from idiosyncratic or macro risk factors. We therefore believe that as an investor, when considering an investment in Alternative Income, one should be diversified across sub asset classes and across geography to mitigate and minimise these risk exposures.