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Private credit emerging in Africa

Asset class offers safer means to access growth markets across continent

Private credit is a strategic, mainstream asset class in international portfolios. Its appeal centres around a constellation of desirable characteristics, including a yield premium, downside capital protection and lower duration sensitivity than competing credit sub-asset classes. Diversification into private credit can help optimise portfolio efficiency. There is significant global interest from sovereign funds, pension funds, insurers and family offices. Most investment is directed towards developed markets in the US and Europe. There are indisputable signs of maturity in developed markets. A ‘wall of money’ effect, high earnings before interest, taxes,depreciation, and amortisation multiples and intense competition seem to have compressed returns and diminished the appeal of private credit. Returns on vintages immediately after the European debt crisis offered returns of 13%-15% on an unlevered basis for senior debt. Industry observers note expected returns have compressed towards 7%-8%. In the US, net internal rates of returns are closer to 6%-7%, with cash yields of 4% or less. Read full Article

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