Investment platforms democratising access to private debt opportunities
According to a recent research paper by Zero One, commissioned by KILDE, private debt, an asset class yielding positive regular returns on a risk-adjusted basis, is now becoming more accessible to individual investors through investment platforms offering debt opportunities.
"There is a large and growing opportunity for investors to earn compelling risk-adjusted returns funding private companies via new technology platforms," says Vincent Fernando, CFA, director of Zero One Research.
As banks continue to ignore MSMEs in favour of larger listed companies, the financing gap for smaller businesses remains huge, particularly, in East Asia & the Pacific, where it is estimated at USD2.4 trillion. Beyond the MSME lending gap, many consumers struggle to access bank financing. The volume of issued private debt, addressing these financial gaps, is growing rapidly and has developed into a regulated mature investment asset class.
Radek Jezbera, CEO of KILDE, says: "Over the last few years alternative lending has grown to become a key source of funding for Mid Market and SME companies as well as consumers, filling the funding gap left by the banks, and the Middle East is no exception to the trend. The policymakers in the region have made it a priority to ensure sustainability and growth of smaller businesses. The financing gap remains large, and will drive more local and international private debt investors to the market."
In the current low-interest rate and accommodative monetary policy environment, positive yield fixed income investment opportunities are found exclusively in the private debt markets.
Traditionally, only larger institutional investors could access these opportunities. However today new tech-enabled companies are democratising the asset class and making it accessible to smaller institutional and individual investors, such as via peer-to-peer (P2P) or specialised lending platforms as with any other asset class, the key is an accurate risk assessment or finding a reliable partner to take this task on. Investors thus should decide whether to lend directly to private borrowers or invest through platforms that offer structured and securitied private debt investment products.
The research further explores the types of private debt opportunities and key factors to consider when choosing the right party to invest with.