Family offices began to invest more actively in private debt due to pandemic
During the spread of the coronavirus and the extremely soft policies of central banks around the world, asset efficiency decreases. To avoid volatility of funds, family offices of large companies actively lend to other businessmen who find themselves in a difficult situation in order to avoid the depreciation of funds that threatens the stock market.
Michel André Heller, the Head of Citigroup Inc. Europe, Middle East and Africa, said that the majority of the bank’s clients are concerned about what to invest in now so as not to lose their assets. Companies don’t want to take too much risk, but they are concerned about the issue of capital allocation.
Along with COVID-19, the profitability of private debt began to grow. Markets began to recover in April, but the yield on US penny stock fell from 11.7% to 8.1%.
Institutional investors may be intimidated by such returns, but few have bigger income planning than family offices that seek to build capital across generations. With all this, they are much less limited in the choice of investment tools than others. According to a study made by Preqin company, the amount of money invested by family offices in private debt has doubled since 2015.
As a rule, developers resort to loans from these companies, who, thanks to family offices, can get access to funds on more favorable terms than in banks. In return, companies gain access to asset-backed loans and interest payments. Just like banks, family offices can take assets for themselves in case of debt non-payment. However, few companies keep real estate for personal use.
Among the investors who work in the field of private debt are Frank McCourt, former head of Los Angeles Dogders, as well as British billionaires Maimon and David Ruben.