Private Credit and ‘Levelling Up’

Challenging the consensus view that impact is only possible via equity investments, interest is growing in the ability of impact credit to provide an innovative, targeted and effective response to big issues, including climate change.

Private credit has a real part to play in sustainable financing and ‘Levelling Up’ the UK economy. The UK Government states that an estimated £50 billion – £60 billion of additional capital investment is required each year to meet national climate goals.

Britain has just 27 years to become a net zero economy, effectively ending the nation’s contribution to climate change by 2050. The UK requires a step-change in levels of investment to transition to a resilient, nature-positive, net zero economy, with trillions of pounds reallocated and invested into new technologies, services and infrastructure.

We explore private credit beyond income and towards impact. We discuss what is private credit, why private credit and what impact investing is in the context of private credit.  

Key takeaways

• Greater access to Private Credit markets by borrowers supports the UK Government’s ‘Levelling Up’ approach and can help address the UK’s regional economic disparities
• Private credit is gaining attention from global investors
  – It is particularly relevant in the current market environment
  – It is an important asset class, worth considering for well balanced asset allocation in UK pension schemes. Risk-adjusted returns in today’s environment are attractive
  – It is giving pension scheme trustees an opportunity to improve their portfolio sustainability and deliver on impact objectives

What is private credit?

Private credit is a type of lending provided by investors (often via specialist private credit funds). The loans that comprise the asset class are neither listed nor traded on public markets. Terms, which might include specific borrower covenants that improve lender protections, are typically negotiated directly between lender and borrower.

Why private credit?

Private credit answers a real need for both borrowers and lenders:

• Borrowers can access capital that may not be available through traditional bank sources,
  particularly if they are raising capital to fund growth, acquisitions or working capital solutions
• Lenders (and investors in the funds of private lenders) are offered an attractive source of return, ranging from 5%-20%+
• For both borrowers and lenders, private credit can offer more flexible loan structures than traditional banks (tailored to market participants’ risk tolerance)

Private credit once again offers investors incremental relative value and enhanced sustainability opportunities. For UK companies seeking financing, and investors alike, this can only be good news.

Kerrin Rosenberg, CEO, Cardano Investment