May 2021: Private Debt and Digital Lending Digest
by Radek Jezbera
Welcome to the second 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.
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.
With senior secured loans in private debt offering returns in the range of 5-10% - a significant premium over similar credit risk in liquid markets - investors will continue to seek opportunities to place capital with private lenders.
Alternative investment managers’ combined assets under management grew 5.1% to an all-time high of $7.4 trillion in 2020, despite a 21.4% year-over-year drop in fundraising worldwide, according to a McKinsey & Co. report.
US investment group Ares has raised €11bn for one of the world’s largest private debt funds, as lightly regulated alternative lenders step up their attempt to supplant traditional banks and bond markets in the wake of the pandemic.
In the wake of the 2008 financial crisis, direct lenders have snapped up market share -- especially in times of volatility when borrowers and sponsors want the certainty of financing, even at a higher interest rate
With senior secured loans in private debt offering returns in the range of 5–10%—a significant premium over similar credit risk in liquid markets—investors will continue to seek opportunities to place capital with private lenders.
While loan volume in the $890 billion private debt market has been strong, the asset class may see increased competition as larger borrowers look to public markets to lower their financing costs.
The evolution of the nearly $1 trillion private debt space follows a similar path to one private equity has already tread — the development of a mature secondary market.
JP Morgan Chase’s chief executive has said that many banking products and forms of lending are moving out of the banking system to non-banks.
The emerging financial technology of "buy now, pay later" (BNPL) has attracted investor attention for its popularity with young shoppers who spend an increasing amount of money online. The recent IPO of BNPL fintech company Affirm (NASDAQ:AFRM) was met with some initial excitement, but since the spirited opening rally, the stock has fallen over 50% from its all-time high.
Lunar will absorb Lendify’s loan book as the digital bank cements its position as a one-stop-shop for banking in the Nordics.
COVID pandemic has accelerated financial inclusion. As social distancing guidelines forced people to stay indoors, the pandemic acted as a catalyst in nudging millions to adopt digital technology for ordering essentials and other items.
Even before the pandemic threw the economy into disarray, small business owners were increasingly moving away from banks when seeking funding.
Kilde is a regulated investment platform for alternatives. We operate as a two-sided platform connecting institutions / HNWI with securitised private investments. Our main alternative asset classes are private debt, venture debt, and recurring revenue financing. Kilde has partnered with leading non-banking consumer & SME lending firms to give investors safe and controlled access to consumer lending assets. Our unfair advantage is vast accumulated data on consumer & SME assets performance as well as scalable investment and securitisation tech platform. Thanks to Kilde’s license for dealing in securities, we securitize alternative investments into digital securities.