Private credit【terms explained】

Looking to enhance your portfolio with consistent income and diversification? Adding private credit to your portfolio can be a smart move, offering access to unique opportunities. But don't forget—along with the rewards come risks as well so it's important to always weight these factors before investing.

What is private credit?

Private credit involves lending of capital to private companies in the form of loans, bonds and other credit instruments by non-bank lenders.

Types of private credit

There are different types of private credit, including senior and junior debt, each with their own tradeoffs.

What are the key risks investing in private credit?

1. Credit Risk

Borrowers might default on their loans, potentially causing losses.

2. Interest Rate Risk

Rising interest rates can decrease the value of fixed-rake debt instruments.

3. Liquidity and Valuation Risk

Private credit investments may have no or limited liquidity. Valuations may be based on estimates and there is no guarantee of selling at fair value.

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(Coming Up: How to Profit from a Recession: Turning Economic Downturns into Opportunity. Stay tuned for tomorrow's article.)