“In the absence of capital access from the traditional private banks, our new platform has emerged to fill the void.”– John Royce Lynch, Founder & CEO
“Private credit” refers to any loan offered by an entity that is not a bank, and it comes in many flavors—from peer-to-peer (“P2P”) lending platforms like Prosper, Lending Club and On-Deck to multi-billion-dollar asset managers like The Blackstone Group.
Private credit returns are achieved by investing in predetermined, contractual streams of cash flows at an attractive price along with risk mitigating structures put in place to further reduce downside risk, such as recourse agreements, first-loss capital protection and reserve accounts.
The continuous retracement in private banking is creating outsized growth in demand for private credit and unfolding an enormous opportunity for investors to generate high yielding returns providing capital to UHNW individuals shut out by the private banking industry. However, as with any investment, there are pros and cons associated with private credit.
Non-correlated assets.
Private credit investments rely on a stated stream of principal and interest payments for their return, as opposed to public market fixed income investments whose values fluctuate in part with changes in sentiment, interest rates and macro-economic influences. Because they are uncorrelated with traditional asset classes, private credit investments are a valuable tool for protecting capital from market volatility and providing capital protected income.
Cooperative versus competitive investment strategy.
Private credit investing is a cooperative versus competitive/zero-sum investment strategy. Private credit investors don’t have to rely on outsmarting Wall Street to obtain alpha. Rather than being on the other side of someone else’s trade, private credit investors are providing financing where it is needed the most in return, seeking potentially higher returns. The Syndicate is truly a community of common interests of private clients, supporting other private clients, both seeking private client outcomes.
Investment in a private “Peer to Peer” community.
Since the financial crisis of 2008, political rhetoric has been constant drumbeat for demonizing financial success for political gain and policy adoption that has been restrictive to the most accomplished of our society. The Syndicate by Royce Private is a closed loop ecosystem of UHNW investors facing other UHNW individuals, Peer to Peer, that are looking to access capital, and allocate capital, in a private credit marketplace managed by Royce Lynch Private Capital.
Private Client Credit Investors appreciate and value the social responsibility and community support of other UHNW individuals. Private Client Credit Investors fund loans for other UHNW clients of the firm for purposes of acquiring additional property assets for their real property portfolios, provide equity access from their existing real estate assets to create investable liquidity into their growing business ventures, acquiring a vacation home for the family, and many other means of contributing to a healthy and vibrant community of peer group families.
In addition to the “feel-good” benefit of investing in a community platform that supports other UHNW families, Private Client Credit Lenders are senior to all other creditors in the rare event of a default.
Duration matched income options.
Thanks to a wide variety of loan structures and term options, investors can select from long or short-term investments based on the duration that suits their needs.
Lack of liquidity.
Investors in private credit must be willing to hold their investments until maturity. Whereas traditional fixed income investors can count on liquidity because of the market for government and corporate bonds, private credit investments do not offer this flexibility.
In a market fueled by speculation, manipulated by central bank policy, and untenable market volatility, UHNW investors are flocking to private credit as a capital preservation shelter to these punitive forces putting capital at risk. Liquidity that once was a primary argument against private market investing is now the very protection mechanism of this asset class.
Barriers to entry and by invitation only.
While individual “everyday” investors can participate in P2P lending via platforms like Lending Club and Prosper, private market credit opportunities offered by Royce Lynch are only available to accredited and qualified investors by invitation only.
Many other private credit opportunities are available only to accredited investors through an advisor—which means not everyone can access them. Additionally, as with any investment, the risk of loss of principal does exist.
The trend away from volatility.
Private Market Credit is the latest alternative investment opportunity offered to the private client community. The private market space is growing rapidly but not all investments are alike. UHNW investors and their advisors should do their homework and focus on capital protected investing backed by tangible assets. The public market volatility is here to stay and we expect to see a large portion of liquidity and capital managed accounts continue to pivot to private market debt for the foreseeable future.
Royce Lynch presents a very rare opportunity to investors and their advisors on this journey towards capital alignment to private market alternatives. A community of common interests coming together to decentralize capital and commerce is a sea change that will forever chart a new course for Private Wealth Management.