In Chile the asset class with the highest growth in the last four years, and which continues to have the greatest potential, is Private Debt. From 2019 to date we have had important events that have strongly affected traditional assets. We started with a strong social and political crisis, then came the pandemic and we continue with social, economic and political uncertainty that does not envision a quick solution. One of the asset classes that has emerged as a winner in these difficult times is undoubtedly Private Debt.

Consistent positive returns in times of crisis is the greatest virtue it has demonstrated. Returns in this category have been around 6% in the last 5 years. Outstanding performance compared to fixed income, which showed losses in 2021, low rates on time deposits during 2020 and part of 2021, and the historically high volatility of equities and currencies in Chile.

This resilience and attractive risk-adjusted returns have led many people to invest for the first time in this asset class. first-time investors to invest in this asset class for the first time.. The increase has been incredible. In three years, the size of funds in this asset class has more than doubled. The range of funds in this category has expanded and there are now a variety of strategies for all types of investors.

So, let's see what it is all about Private Debt.

Private Debt Funds are dedicated to provide financing to companies, receiving in exchange an interest rate, as a bank does. These financings generally work with guarantees, in order to limit the credit risk of a financing, and thus the funds make sure to recover the financed capital in case there is a default. This makes them relatively low-risk funds relatively low risk, if properly managed.

What are the advantages of Private Debt?

• Predictable returnsThis type of asset is generally not driven by what happens in the market and returns are determined by the rates of the credits in the fund's portfolio, which makes them have predictable returns in the short term..
• Resilience in times of crisis: It has been proven in recent years that this type of asset has maintained positive returns in times of crisis, and that it is a alternative to avoid volatility in the investment portfolio..
• Decorrelation with traditional assets: According to various studies, an investment portfolio is more efficient by mixing traditional assets with alternative assets, such as Private Debt, in your portfolio. This This allows you to improve returns, given a given risk.
• Wide offer available: The supply of this type of funds has grown strongly. According to data from the Acafi, these funds in Chile already manage close to USD 6 billion, more than doubling the amount in the last 3 years.

Private Debt funds that invest in Chile, Peru, Mexico and the United States; funds in dollars, pesos and UF; with short durations of less than 3 months with the possibility of redemptions; and other long-term funds seeking a liquidity premium, are some of the characteristics that can be adapted to the needs of each investor. can be adapted to the needs of each investor.

It is also possible to choose a fund that invests only in specific assets. specific assets or in a variety of them. For example, there are funds that invest only in real estate assets, bill funds, auto loan funds, infrastructure funds, short-term working capital funds, natural resources funds, among others.

The supply continues to grow strongly. The Private Debt fund market is still incipient in Chile and has an enormous growth potential when compared to the participation of this type of assets in private and pension fund portfolios in developed countries. Private Debt funds are a very good alternative to have predictable returns with a limited risk.. The important thing is to choose a fund that adapts to the liquidity and risk that the investor is looking for, together with choosing a trustworthy and experienced manager to intelligently and responsibly manage the investment portfolio.

By: Matías Castro