Alternative credit assets hold an intuitive appeal for long-term investors seeking yield and diversification in a low-interest-rate environment. Given the growing interest in the market, it is important to consider the risks inherent in private credit, and how investors are compensated for them. In particular, this PDF addresses the following questions:
- What exactly is illiquidity risk?
- How does it manifest itself?
- How is it relevant for long-term investors?
- What is the outlook for premia in alternative credit?
- How do the different market segments vary?
- What is the role of active investment management in generating returns?
SECTION 1: The Changing Landscape of Corporate Borrowing
- The search for yield
- Alternative credit markets
SECTION 2: Premia and Risks in Alternative Credit
Decomposing credit spreads
Default risk in alternative credit
Liquidity and asset pricing
Illiquidity and the "patient invest"
Transactional liquidity risk
Systematic illiquidity risk
- Other risks
SECTION 3: Gauging the Size of the Illiquidity Premium
- How large is the compensation for illiquidity?
SECTION 4: The Persistence of Premia
Implications for the persistence of premia in alternative credit
- What about alpha?