Private Debt

Security and returns from private lending

Private debt is an important funding component for fast-growing, medium-sized companies. Investors profit from different return components, which may include equity-like elements in addition to an attractive rate of interest. Around a quarter of total income comes from the equity kicker payable at the end of the investment.

The market: private debt financing

Private debt comprises mezzanine and other forms of debt financing that comes mainly from institutional investors such as funds and insurance companies – but not from banks. In contrast to publicly listed corporate bonds, private debt instruments are generally illiquid and not regularly traded on organised markets. They originate in the UK and the USA, where they are an established form of funding and have long been used for growth finance and buyouts. Fund managers generally specialise in specific market segments:

  • Senior debt refers to first ranking, secured loans used to finance buyout transactions and growth funding. Returns are generated almost exclusively by the current interest payments.
  • Mezzanine is an intermediate form between debt and equity. It is used mainly for buyouts and growth finance and is often subordinated to bank debt. Returns are made up of several components; primarily current and final interest payments, as well as warrants for shares in the company being acquired, known as "equity kickers".
  • Credit opportunities funds invest in a wide variety of financing structures and situations. Alongside complex refinancings of companies who are cut off from capital markets for various reasons, the funds also specialise in secondary transactions.
  • Distressed debt funds debt funds mostly buy senior secured loans in the secondary market at a discount to their face value. They concentrate on acquiring sound assets in situations in which companies have run into financial difficulties.

Good reasons for private debt investments

1. Attractive, stable spreads
Private debt and mezzanine offer attractive spreads over sovereign debt, corporate bonds and high yield securities.

2. Low correlation with other asset classes
Low correlation with traditional asset classes provides positive diversification.

3. Risk reduction
Stable performance across all market cycles thanks to combination of different credit strategies.

4. Well-established asset class
The asset class has highly experienced fund managers with verifiable track records and differentiated investment approaches.

Our services

Golding Capital Partners offers institutional investors efficient access to the asset class private debt via specialised target funds in Europe and the USA. The aim is to build a diversified and robust portfolio for all phases of the economic cycle. We attach particular importance to the due diligence and professional selection of our target funds. Thanks to our excellent networks and many years of market experience we have access to the highest quality target funds.

Investments in private debt also entail risks

  • It cannot be guaranteed that any particular return or income targets are met. Past returns and forecasts are no guarantee for future success. 
  • Minority shareholders that are not involved in the management of a private debt fund have no or only limited means of exerting an influence over the fund manager. 
  • At the level of the private debt funds it is often permitted and common to use not insignificant levels of debt, known as leverage. Although the use of leverage can improve the returns, it also increases the potential for losses. 
  • The market values of the private debt funds may be subject to considerable volatility as a result of macroeconomic factors and/or other market conditions, particularly market interest rates. 
  • Private debt funds are generally not regulated investment vehicles and only offer limited protection to investors. 
  • Investors bear the tax and regulatory risks associated with the private debt funds and the investments they make.
  • If the risks materialise, investors in private debt funds may incur losses up to the total loss of their invested capital.

Detailed comments on the risks of the investment programme can be found in the respective issue document.