Private credit is a unique and resilient financial instrument that has carved a niche for itself as an attractive investment, capable of offering high returns even in challenging economic climates.
This blog will highlight the key qualities that make private credit, specifically MCAs, such a promising alternative asset to invest in, including some real-world examples of major investment banking companies turning to MCAs in their investment strategies.
Why Private Credit is a Premiere Class for Alternatives
Historical Performance and Stability
Historically, private credit, and MCAs in particular, have demonstrated impressive stability. Data shows that even during the economic downturns we have all experienced over the last decade, it has consistently provided attractive risk-adjusted returns.
It’s the structure that gives it the ability to thrive during both good times and bad. It’s less susceptible to stock market volatility and has shown itself to be a robust investment avenue during booms and busts.
A June 2023 report from JD Supra states:
“Investors recognize the advantages of private credit and are increasingly allocating their capital to this asset class. Private credit has shown resilience and outperformance compared to other asset classes.”
High Return Potential of Private Credit
Private credit can offer pretty high return potential, unlike so many traditional investment assets. You can listen to this podcast episode from PWL Capital for a really well-evidenced discussion oits potential returns.
Specifically, MCAs can yield returns in double-digit percentages, potentially bringing in returns that you would struggle to achieve elsewhere. This is partly due to the interest and fees attached to the cash advances, which, when managed appropriately, can provide you with high yields as an investor.
Risk and Reward: Navigating the Waters
While it holds great promise, like any investment, it comes with its own set of risks. These can include credit risk, liquidity risk, and platform risk. As always, you’ll want to assess these risks in relation to the potential returns, and your own personal tolerance.
Strategies for Risk Management
Managing risk in investments involves highly detailed and expert underwriting, thorough due diligence, and professional investment management. You can also limit some of your exposure to risk by investing across a broad portfolio of loans, industries, and locations.
The Benefits of Private Credit Investments
Access and Transparency
Investing in private credit like MCAs offers an unprecedented level of transparency. Unlike traditional investment assets, you can handpick the businesses you want to support, providing a granular level of control. If that’s your style, then our self-directed model is for you.
Portfolio Diversification
With a low correlation to traditional asset classes, MCAs provide a useful tool for portfolio diversification. We’ve said it before, we’ll say it again: A well-diversified portfolio can help mitigate risk and increase the potential for return.
Major Investment Banking Companies Are Turning to MCAs
Huge investment banking companies like Goldman Sachs, American Express, and JP Morgan are turning to MCAs as an investment option.
Back in 2020, Douglas Muir, CEO of the Family Business Fund, went on record stating:
“If you still hold some skepticism toward alternative funding, you should know that the big boys are moving onto our playing field and legitimizing merchant cash advance funding. Take, for example, Goldman Sachs, whose merchant banking division just closed a $10 million equity round with a small business lending platform that offers merchant cash advances.”
Conclusion
Private credit, particularly MCAs, is proving themselves as resilient investment options, delivering consistent returns in varied economic conditions.
While the future is never guaranteed, the proven track record and benefits of private credit suggest it will continue to be an increasingly attractive option for investors navigating both economic highs and lows.
Ready? You can get started with MCAs here.
