July 2021: Private Debt and Digital Lending Digest
by Jaslyn Tan
Welcome to the monthly digest about Private Debt and investing in Digital Lending providers. We have hand-picked thought pieces and new information relevant to the topic from the past month. Please, feel free to reach out in case of questions or feedback.
1. Ex-Blackstone Director Plots 30% Growth at Onex via Private Debt
2. Private Credit: The $1 Trillion “New 40” Opportunity
3. Consultants see continued drive towards ‘alternative’ private debt, including regulatory capital and direct lending strategies
4. MassMutual: private debt to outperform private equity over 10 years
5. Beating inflation with private debt: who’s in your starting 11?
6. How can fixed income investors find diversification and returns in an unrecognisable bond market?
7. Q&A: State Super's alternatives makeup shifts towards private debt
8. Alternative Investments Can Be An Advisor's Differentiator
Investors hunting for higher yields are once again shoveling record amounts of cash into private lending, catapulting the asset class to more than $1 trillion globally. Onex Corp. doesn’t see the demand fading any time soon.
The private debt asset class has provided investors with an attractive combination of high cash yield and floating rate returns coupled with low volatility and loss rates, while modernizing portfolios.
Private debt strategies continue to gain investor traction, as institutional allocators look to increasingly esoteric ‘alternative’ fixed- income- style products, according to interviews with global and boutique investment consultancies conducted by Private Equity Wire.
The head of direct private investments at MassMutual says the US life insurance company is seeking unique niche opportunities in private debt strategies and believes the asset class will outperform private equity (PE) over a 10 to 15-year horizon.
Private debt as an asset class is an especially attractive option, particularly when inflation is rising, something with which markets have not had to grapple for some time. Our goal is to be the attacking defender in investor portfolios by providing that winning and balanced combination of attack in the form of potential income, and defence in the form of aiming to provide capital preservation through all market cycles.
Investors seeking to generate yield and total return may need to explore areas of the bond market they are less familiar with. Through direct, non-bank lending that targets different parts of the capital structure, investors can gain fixed income exposure that is often less correlated with public bonds, while also less sensitive to public market price volatility.
The Australian pension fund joins other asset owners in eyeing private credit opportunities in the Asia-Pacific region, although liquid defensive assets retain a majority of allocations.
Offering clients the opportunity to invest in alternative assets can be good for the advisors, as well as for the clients, according to Christopher Zook, founder and chief investment officer of CAZ Investments, a wealth management firm and multifamily office based in Houston.
1. Digital lending to small businesses see uptake post Covid disruption last year: MSME lenders
2. Fintech funding smashes quarterly record
3. How Digital Lending Can Accelerate the Growth of Small Businesses
4. Google Pay enables online loans for small businesses, partners with digital lending app FlexiLoans
5. Citi Australia enters buy now, pay later market
6. European Buy Now Pay Later Market Heats Up
Adoption of digital lending platforms among small businesses post-Covid has accelerated even as the traditional banking channel has remained a challenge for a vast number of credit hungry micro, small, and medium enterprises (MSMEs) in the country. The digital route to secure instant credit has helped the MSME loan book of digital platforms to swell from last year. Internet penetration and growing adoption of affordable smartphone devices coupled with digital lenders plugging the information asymmetry gap have also pulled traditional and new age borrowers from metro cities and India’s hinterland towards the digital channel.
Fintech companies raised a record $30.8bn (£22.4bn) in the second quarter of this year, across 657 deals, a new report has found. Market intelligence firm CB Insights revealed that the second quarter was the largest on record for fintech funding volumes, surpassing $22.8bn across 614 deals in the first quarter. Digital lending firms saw their funding increase by 78 per cent quarter-on-quarter to $7bn.
There are around 60 million micro, small, and medium size enterprises (MSMEs) operating in India today, contributing significantly to India’s GDP and nation’s employment. But a major barrier to their growth has been the ease of getting credit – today, around 40 per cent of total MSME credit demand is still served by informal sources of credit. This under-served market is a huge potential for MSME lenders and digital players to cater to, with innovative business models tailored specifically to the needs and behaviour of this segment. Across India, the MSME lending landscape is now shifting, with formalisation and digitisation driving the market towards disruption.
Google Pay for Business has now enabled small merchants to access credit through its tie-up with the digital lending platform for MSMEs FlexiLoans. The latter is also looking to disburse loans to over 50,000 small businesses in the next 12 months with this collaboration.
Citi Australia is taking on local buy now, pay later vendors Afterpay and Zip, joining forces with online retailer Kogan.com to allow credit cardholders to enter into an instalment loan at checkout.
Buy now pay later (BNPL) arrangements, which allow customers to buy items on credit and pay the money back over time, is witnessing record growth in Europe with demand from consumers rising and investor sentiment remaining overall optimistic, according to a new report by European startup news site Sifted.