It is perhaps no coincidence that private debt as an alternative investment class is booming as the rate of corporate delistings continues to rise.
The JSE's delisting rush has been well documented, from 776 listed companies 30 years ago to around 300 companies today. In other words, the universe of available stocks has been reduced by more than half.
The trend is similar globally, with the number of U.S.-listed companies halved since 1996, according to World Bank data.
The reasons for this vary, but some common themes emerge, including the high costs of listing, intense public scrutiny of directors, and unrelenting shareholder demands for short-term profits. It's coming up.
Companies that choose to delist often cite high stock market rules and compliance costs, as well as a desire to pursue long-term strategies that are punished by investors looking for short-term gains. .
Compare this to the staggering increase in private debt in the name of alternative investments. The market is currently worth about $1.5 trillion and is expected to double to $3 trillion over the next five years, according to Dino Zuccolo, head of investor solutions at Westbrook Alternative Asset Management. has been done.
Alternative assets are estimated to be worth $17 trillion worldwide and are expected to grow to $25 trillion over five years, with much of this growth likely to come from private debt.
“Private debt is one of the fastest growing asset classes in the world, and there are many reasons for this,” Zuccolo says. “One of the main reasons behind the surge in private debt is the new Basel banking rules introduced in 2008, which impose regulatory restrictions on banks and allow banks to make certain types of loans. It had become uneconomic. It was a market filled with private debt.
“Unlike banks, we don't accept deposits and are less regulated. We collect funds from investors and lock them up for a set period of time.
“This means we can deliver capital to our target markets in a fast and agile manner, often with smaller ticket sizes,” he added.
“This allows banks to make loans that they can no longer make, but should.”
The void left by banks has opened the door for alternative asset managers to fill.
According to EY research, rising interest rates, inflationary pressures and economic uncertainty pose some unique benefits for investors, with “most major private equity players taking a share of their assets privately”.・We are directing funds to the credit market.”
This is an auspicious moment for private debt. Jonathan Gray, CEO of Blackstone, the world's largest alternative asset manager, says the current environment is a “golden moment” for this emerging asset class.
Private bonds offer a haven from traditional market volatility by aiming to beat prime rates by 1-3% and producing cash yields that are better than those offered by most bond funds.
Westbrooke Yield Plus – Offshore Private Debt Option
As an example, Westbrook's flagship fund, the Yield Plus Fund, is a Jersey-based open-ended fund that invests in a diversified portfolio of 48 investments, primarily floating rate private bond transactions in the UK. Provided at home.
The fund is structured to provide an asymmetric risk-return profile by providing financing to lower and mid-market corporate and property sponsors in the UK, a relatively underserved market in the UK. I am.
Interest rates in the UK are currently at their highest in decades, with the fund yielding 9.5% in sterling before fees and costs, compared to 3.5% for banks.
This is also tax efficient for South African investors. Capital preservation is core to the Fund's investment philosophy, and approximately 82% of the Fund's loan exposure benefits from senior securities, primarily in the form of real estate or tangible assets. The fund currently has a track record of never going down for over five years.
Westbrook Income Plus – Local Private Debt Option
Another option is Westbrook's Income Plus strategy, which targets Rand-equivalent returns of 1.5% to 3% a year in Prime Plus, before fees and expenses paid quarterly to investors.
Last year, this strategy delivered a 14% yield to investors.
This provides protection against inflation with capital preservation and a low-risk investment profile. The investor is subject to a 12-month lock-up period and a 6-month capital redemption notice period. This is a significant advantage compared to private equity investments, which typically require a lock-up period of 5 to 7 years.
co-investor
Zuccolo says it's important for fund managers to discuss risks with investors. Westbrook has R12 billion in assets under management, of which 10-20% is corporate and shareholder funds.
“We invest alongside our investors so our returns match theirs. This is at the core of our investment philosophy. We believe that fund managers follow the same advice they give their clients. , we believe that risks and benefits should be shared.”
To provide further peace of mind to investors, Westbrook is licensed by the Financial Sector Conduct Authority and employs external managers and auditors.
What is personal debt?
Private debt is financing provided to businesses by non-bank lenders such as institutional investors, debt funds, insurance companies, and private investors.
Since the 2008 global financial crisis, regulatory reforms (particularly Basel III) have increased costs and limited the appetite for credit by banks' credit committees, leading banks to increase their focus on certain areas of the fixed income market, particularly in the low-to-mid market. The company has decided to withdraw from the segment.
Zuccolo said Westbrook focuses on niche areas that are underserved and in high demand among borrowers.
“This strong demand and limited competition presents a unique opportunity to earn attractive risk-adjusted returns. Compared to traditional bonds, private debt offers investors high yields, portfolio diversification, and low It can provide portfolio volatility.”
Where do the ultra-rich spend their money?
Most of South Africa's ultra-high net worth individuals (UHN) have long understood the need to diversify their portfolios overseas. By some accounts, 90% of UHN funds are already offshore. This primarily reflects the weak rand and the limited locally available investment pool.
Mr Zuccolo said the company had raised R4 billion from local investors, including institutional investors, in 2023 mainly due to concerns about limited return scope in traditional markets.
This is undoubtedly a sign that SA investors are beginning to recognize the benefits of alternative investments such as private debt as a safeguard against market uncertainty.
provided by Westbrook Alternative Asset Management.
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