Glossary
Private Debt
Private Debt refers to loans extended directly by private investors or specialised funds to companies, rather than through banks or public bond markets. Investors receive interest payments in return and bear the credit risk of the borrower.
At a glance
- Private Debt includes strategies such as direct lending, mezzanine, and distressed debt.
- The loans are generally not traded on public markets.
- Interest is often variable, based on a reference rate.
- What determines the risk is the rank in the capital structure. Senior secured loans rank ahead of mezzanine and subordinated tranches if a borrower becomes insolvent, and the higher interest paid on subordinated strategies is the compensation for precisely that subordination.
- One route of access in Switzerland is the Limited Qualified Investor Fund (L-QIF), available since 1 March 2024. It is open only to qualified investors, requires no authorisation from FINMA and is not supervised by it; only the managing institution is supervised (Source: FINMA).
Frequently asked questions
The primary risks are the credit risk of the borrower and restricted tradability. Investors commit their capital for the duration of the loan and cannot withdraw it at any time.
The two do not serve the same purpose in a portfolio. A listed bond can be sold on the exchange on any trading day and carries a market price at all times. A Private Debt exposure has no such market, and its value is established only through periodic valuation.
Part of the topic
Private Markets
Sources: FINMA