Potential protections built-in to private market investments
Private debt can offer unique credit enhancements that can help reduce risk and protect your principal.
During volatile markets, many investors are seeking confidence that their principal will remain safe and that their investments will offer some form of protection for their portfolio.
Private debt opportunities may provide advantageous qualities for their portfolio. Here are a few of the principal protection characteristics offered by these types of opportunities.
Loans are asset-backed
One of the benefits of debt investments is that they are typically backed by tangible assets that can be reclaimed in the event of default. For example, a real estate property or collection of artwork could be claimed if the borrower was unable to pay.
Low loan-to-value (LTV)
Private market debt opportunities often have a lower loan-to-value ratio, meaning that the amount of the loan relative to the value of the asset is lower. This way, in the off chance a borrower defaults, a low LTV suggests that the underlying asset could potentially be sold for significantly more than the loan amount, further helping with the principal recovery efforts.
Insured
Another element of private market debt opportunities that suggests further principal protection for curious investors – in the event the investment goes south and something were to happen to the underlying asset, insurance policies are usually in place to help provide expected principal protection. This serves as another important guardrail.
Full recourse guaranty
A full recourse guarantee provides an investor in a loan rights to assets — beyond just the secured collateral specified in the loan contract — to cover the full repayment of the borrower’s loan obligations if there is a default. This is another key measure that can help provide investors with peace of mind that their underlying principal will be protected by the structuring of the deal.
Interest reserve
Another form of protection that investors may have in certain private market debt deals are interest reserves. This requires the borrower to fund a collateral account with enough to cover a certain period of interest expenses. That way, in the event that there’s uncertainty or an inability to make a certain interest payment, the expenses will be covered. When each month can bring new forms of uncertainty, this can be another way for investors to have some security and maneuverability within their deals.
When making their next investment, especially against a backdrop of uncertainty and economic volatility, investors looking for principal protection and to not ride the rollercoaster of uncertainty associated with many equity investments, private market debt investments offer key principal protection without sacrificing competitive yields. For the above outlined reasons, investors should have confidence that their investment will be protected in the event of a downturn, and their underlying principal can be insulated. Of course, all investments carry a degree of risk, and investors should be careful to do their own due diligence and research to determine what will work best for their portfolio’s needs. But for investors looking for additional protection – private market debt opportunities may be an intriguing portfolio addition with build in protection measures.
Consider some of Yieldstreet’s private market debt opportunities today, and see if they fit your investment needs.
All investments involve risk, including the possible loss of capital. There can be no assurance that any product or strategy described herein will achieve any targets or that there will be any return of capital. Past performance is not a guarantee or reliable indicator of future results. Current performance may be lower or higher than the past performance data quoted. Any historical returns, expected or target returns are hypothetical in nature and may not reflect actual future performance. All performance and/or targets contained herein are subject to revision by Yieldstreet and are provided solely as a guide to current expectations.
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2 Represents an average net realized internal rate of return (IRR) with respect to all matured investments in your portfolio, utilizing the effective dates and amounts to and from the investments and net of management fees and all other expenses charged to the investments. Past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. All securities involve risk and may result in significant losses, including the loss of principal invested.[read more]