Over the past decade, the alternative asset class of private debt has been one of the fastest-growing segments within the investment fund industry. This can be explained by the tighter restrictions adopted by traditional financial institutions in the wake of the 2008 financial crisis, which created an opportunity for fund managers to enter the market and bridge the gap between supply and demand for access to financing by private companies.

It is important to understand that the objective of private debt funds is to invest in financing instruments or contracts for private companies. Among the main underlying assets in which these funds invest are mortgage loans, SGR-backed loans, accounts receivable, direct loans, preferred stock, promissory notes, and leases, among others. It is important to note that this type of investment follows a medium- to long-term strategy, with rates that reflect a liquidity premium.

After years of being one of the asset classes with the highest annual growth, private debt experienced three challenging quarters, during which the uncertainty caused by both the October 2019 crisis and the pandemic led to a decline in assets under management as of the end of September 2020 compared to the beginning of the year.

However, the environment of low rates for investment alternatives both domestically and globally, combined with increased market activity and improved expectations in the last quarter of the year, led to a recovery in investors’ appetite to allocate more capital to private debt assets, which offer an appropriate risk-return profile, providing better diversification and wider spreads compared to market alternatives.

According to ACAFI data, as of the end of 2020, there were 107 Public Private Debt Funds with assets under management totaling U$4,611 million. Since 2015, assets under management in private debt in Chile—in millions of dollars—have increased by 682%, and compared to the end of 2019, they grew by 23%, making it the third-largest alternative asset class in terms of allocation in the industry, behind real estate and private equity.

Currently, at FYNSA AGF, we manage four private debt funds with approximately $60 million in assets. We offer returns ranging from 4% to 10%, investing primarily in mortgage-backed securities, preferred stock, and promissory notes.