Private credit, encompassing both real estate debt and direct lending, has been experiencing significant tailwinds, making it an attractive option for investors, in our view.
Source: SIFMA “2024 Capital Markets Outlook” with data as of Oct. 2023 for treasuries, corporate, municipal, US mortgage-backed securities (MBS) outstanding. St. Louis Fed and TREPP as of Dec. 2023 for CRE loans outstanding. Pitchbook for AUM and projections, as of June 2024.
These assets may offer structural benefits by providing possible opportunities to diversify income exposure away from traditional asset classes, all while potentially maintaining historically low levels of volatility.
Trailing 5-years of data, last 5 years of quarterly returns annualized 2019Q1-2023Q4, latest data available, updated quarterly. An investment cannot be made into an index.
Invesco Real Estate using data from the following indices: Private Real Estate Debt – Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2), High Yield – Bloomberg US Corporate High Yield Index, Senior Loans – Morningstar LSTA Leverage Loan 100 Index, Private Real Estate Equity – NCREIF Property Index, Corporate Bonds – Bloomberg U.S. Corporate Total Return Value Unhedged USD Index, CMBS – Bloomberg US CMBS Investment Grade Index, Investment Grade Bonds – Bloomberg U.S. Aggregate Total Return Index, Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index, U.S. Equity – S&P 500 Index, Direct Lending – Cliffwater Direct Lending Index. Past performance is not indicative of future results. Diversification does not guarantee a profit or eliminate the risk of loss
Additionally, corporate and asset-backed private credit can complement a portfolio aimed at optimizing risk, return, and yield, which may help enhancing overall portfolio performance potential.
Sources: Invesco Real Estate as of Dec. 31, 2023, using yield to worst data (unless otherwise specified) from the RE Credit - Gilberto-Levy 2 Commercial Mortgage Index (yield to maturity), Direct Lending– Cliffwater Senior Direct Lending Index (yield to maturity, as of Mar. 31, 2024), Investment Grade Bonds – Bloomberg US Aggregate Bond Index, High Yield – Bloomberg US Corporate High Yield Index, Senior Loans – S&P/LSTA Leverage Total Return, Treasuries – Bloomberg US Corporate Total Return Value Unhedged USD Index, CMBS – Bloomberg CMBS IG Total Return Index Value. Past performance is not indicative of future results. Diversification does not guarantee a profit or eliminate the risk of loss.
There is a distinct potential of private credit to enhance income portfolios through diversification, return potential, and structural advantages in today’s market. Read the complete analysis in “Enhancing income portfolios with private markets - complementing direct lending with real estate debt.”
Matt Brill talks about his expectations for the Federal Reserve, his bullish view of investment grade credit, and opportunities in high yield, emerging markets, commercial real estate, and retail.
Higher interest rates, reduced basis, and tighter bank regulations are potential positives for commercial real estate (CRE) credit and why we see opportunity.
Historical increases in US industrial rents have out-performed past trends. Can that run continue? We look at e-commerce and interest rates for an answer.
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This overview contains general information only and does not take into account individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it would be unlawful to market such an offer or solicitation. It does not form part of any prospectus. All material presented is compiled from sources believed to be reliable and current but accuracy cannot be guaranteed. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. The opinions expressed are those of Invesco Solutions team and may differ from the opinions of other Invesco investment professionals. Opinions are based upon current market conditions and are subject to change without notice.
Unless otherwise stated, all information is sourced from
Invesco Solutions in USD and as of July 31, 2024.
Volatility is measured by standard deviation, which measures a range of total returns and identifies the spread of short-term fluctuations.
Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude.
Private Real Estate Debt – Giliberto-Levy High-Yield Real Estate Debt Index (G-L 2) is the first and only third-party measure to monitor high-yield commercial mortgage debt performance for high-yield loans, such as mezzanine loans, preferred equity and "B" notes.
High Yield – Bloomberg US Corporate High Yield Index measures the performance of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds, including corporate bonds, fixed-rate bullet, putable, and callable bonds, SEC Rule 144A securities, Original issue zeroes, Pay-in-kind (PIK) bonds, Fixedrate and fixed-to-floating capital securities.
Senior Loans – Morningstar LSTA Leverage Loan 100 Index is designed to measure the performance of the 100 largest facilities in the US leveraged loan market. Index constituents are market-value weighted, subject to a single loan facility weight cap of 2%.
Private Real Estate Equity – NCREIF Property Index a quarterly, unleveraged composite total return for private commercial real estate properties held for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors and held in a fiduciary environment.
Corporate Bonds – Bloomberg U.S. Corporate Total Return Value Unhedged USD Index measures the performance of the investment-grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities that are publicly issued by both U.S. and non-U.S. industrial, utility, and financial issuers.
CMBS – Bloomberg US CMBS Investment Grade Index measures the market of AAA US Agency and US Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn.
Investment Grade Bonds – Bloomberg U.S. Aggregate Total Return Index s a broad-based flagship benchmark that measures the investment grade, US dollar- denominated, fixed-rate taxable bond market.
Treasuries – Bloomberg U.S. Treasury Total Return Unhedged Index measures the performance of U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. This index includes various maturities of Treasury securities, but excludes Treasury bills due to their shorter maturity.
U.S. Equity – S&P 500 Index
Direct Lending – Cliffwater Direct Lending Index is an asset-weighted index that measures the performance of U.S. middle market corporate loans.
Investment risk
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations), and investors may not get back the full amount invested.
Alternative strategies may include investments in private equity, private credit, private real estate and infrastructure, which may involve additional risks such as lack of liquidity and concentrated ownership. These types of investments may result in greater fluctuation in the value of a portfolio. Private Market investments are exposed to risk, which is the risk that a counterpart is unable to deal with its obligations. Changes in interest rates, rental yields and general economic conditions may result in fluctuations in the value of any underlying strategies. These types of strategies may carry a significant risk of capital loss and other market risks.
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