Answer honestly: Do you know exactly what private credit is? This is a type of investment that can be very interesting to diversify your portfolio.
So you want to understand the subject better? Continue reading!
After all, what is private credit?
It is important to understand that there are two types of securities available to investors: public and private. Government securities are issued by the Government and remunerate the investor based on Selic or IPCA, either post or pre-fixed.
Private securities, their name suggests, are issued by private companies. Typically, they are divided between bank securities issued by financial institutions and private credit securities issued by companies in other segments.
In the first case, we have an example of the CBD, a product already well known to Brazilians. On the private credit side, there are debentures, which are traded on the stock exchange.
Products linked to private credit arose from the need for large companies to capitalize or anticipate receivables, without necessarily having to resort to bank credit lines or promoting changes in their corporate structure.
When we buy a debenture, for example, we inject capital into a company so that it can invest in its production processes, grow and pay back the amounts plus compensation.
What are private credit funds?
As we will see later, private debt securities have a unique combination of elements that can be very interesting for the investor, provided he has the right profile for this type of application.
With this cam the so-called private credit funds, where the investor joins others with the same profile and acquires a stake in a fund managed by a specialist.
Generally, these funds buy different types of securities from large companies and even from the government. And as long as it does not exceed 49% of the fund’s equity, the manager can also buy government bonds to be part of the portfolio.
What are the advantages and disadvantages?
Private credit funds offer three major relative advantages to the investor. The first is that yields are usually higher than Treasury applications.
The second is that the risk is much lower than equity investment. Finally, the third major advantage is the income tax exemption, which applies to some specific cases.
The disadvantages, we can say that private credit is not protected by the Credit Guarantee Fund, which means that it depends on the economic and financial balance of companies. Finally, the initial investment tends to be a little higher, which makes it lose some points in accessibility.
Who should invest in private credit?
As we mentioned, the risk of private credit is lower than investing in the stock market, while its remuneration is better than that of an investment in Treasury. This makes it ideal for those with a moderate investor profile or for those who find themselves midway between conservative and moderate.
The same goes for those looking to migrate between these two profiles. Finally, we could not fail to say that private credit funds are also a great choice to diversify your investment portfolio.
When to invest in private credit?
It is important to note that investing in private credit securities makes us lenders of financial institutions or private companies in other sectors. Thus, the economic momentum lived by the country and the world also greatly influences the risk and profitability of the application.
Would you rather lend money to a company that is having difficulty closing accounts due to lack of customers or a company that cannot grow at the same pace as demand?
When the economy of the country is heated, the likelihood of finding companies of the second type is more likely. If we add the recovery of the Brazilian economy with important rating tools, we can already consider that private credit has everything to be a trend in our market.