How to beat inflation with private debt
After more than a decade of record-low interest rates globally, the current environment of rising inflation and interest rates is coming as a shock for many investors, especially those in fixed interest. While some investors may be racing towards strategies such as alternative duration bonds, Urs Wietlisbach, co-founder at Partners Group, believes the answer is private debt.
“In this environment where we have increased interest rates, a long-term bond, a 10 year bond doesn’t make sense because the valuation will drop. Private markets are all based on floating rates, so this is great. It even helps us on the returns.”
The combination of the current environment and increased retail investor demand has led Partners Group to launch the Partners Group Global Income Fund - Unlisted. The strategy holds about 250 senior loans in it according to Wietlisbach and is less dependent on market rates.
In this edition of Expert Insights, Wietlisbach explores how the current environment is actually beneficial to private debt markets and discusses the strategy behind the newly launched Partners Group Global Income Fund - Unlisted.
- The value of longer dated bonds drops in periods of rising interest rates making it more challenging for investors to generate yield on price.
- Private markets are based on floating rates which means rising interest rates can help returns.
- The Partners Group Global Income Fund - Unlisted is based on their existing listed fund and holds about 250 senior loans.
Why do you advocate private debt over traditional bond markets?
In this environment where we have increased interest rates environment, a long-term bond, 10-year bond doesn't make sense because the valuation will drop. And the private markets is all based on floating rates, so this is actually great. It even helps us on the returns.
What is the outlook for private debt markets in the next six months?
I think private debt will grow further. The reason is increased interest rates, and private debt is always based on floating rates. So increased interest rates are actually helpful for pricing on a floating rate basis.
Has the market outlook influenced your decision to launch the Partners Group Global Income Fund - Unlisted?
People look today for yielding income. We had this listed vehicle who has done very well, RBA plus 4%. We promised, and we have delivered, even over delivered a little bit. But the unlisted version is actually less dependent on market pricing on a day-to-day. And there is a lot of deal flow available on a global basis on senior loans. And we think it makes a lot of sense for investors to come in.
Can you give more detail on the strategy for the new fund?
This fund is very broadly diversified. We will have about 250 different senior loans in it. We are focusing on non-cyclical businesses. So our track record shows it. I mean, we have, on the listed side, we are an RBA plus 4%. We promised, we over delivered. We are RBA plus 4% plus a little bit more. And the same thing you can expect now on this evergreen structure. It's an interesting place to be. You have a yield every month, 0.3% came in. That's not bad.
Learn more about Partners Group Australia
Partners Group are one of the largest private markets investment managers in the world. They have recently launched the Global Income Fund - Unlisted in Australia. To learn more, please visit their website.
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