Private Credit AIF vs Corporate Bonds and NCDs
Understanding the Credit Return Engine
A direct NCD gives exposure to one issuer and a specific instrument. A private-credit AIF pools loans selected and monitored by a manager. The fund may diversify and negotiate stronger terms, but adds fees, illiquidity and manager risk.
Reading Protection, Cash Flow and Structure
Listed bonds may offer observable prices and trading, though liquidity can still be thin.
Private loans can be customised with covenants and security.
The fund controls workout decisions on behalf of investors.
Where Credit Risk Becomes Capital Loss
Diversification can be overstated when the top exposures dominate.
A listed label does not eliminate credit loss.
The AIF’s fee layer must be earned through sourcing and monitoring.
Making the Allocation Decision
Before acting, answer five questions in writing: compare issuer concentration; review security and covenant packages; measure true secondary liquidity; compare net yield after fees and tax; and decide whether you can monitor a direct issuer yourself.
Use a fund when manager execution and diversification add measurable value over direct credit.
Key takeaways
- Listed bonds may offer observable prices and trading, though liquidity can still be thin.
- Diversification can be overstated when the top exposures dominate.
- Use a fund when manager execution and diversification add measurable value over direct credit.
Related questions
What should an investor verify first?
Listed bonds may offer observable prices and trading, though liquidity can still be thin.
How does the structure affect the investor’s outcome?
Private loans can be customised with covenants and security.
What is the main downside to test?
Diversification can be overstated when the top exposures dominate.
How should the final decision be made?
Use a fund when manager execution and diversification add measurable value over direct credit.
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