Returns
While the pros of this sector might be the extra returns you get over what traditional investments can generate, Mr Jaffe explained that investors need to be aware that with debt investing, investors are mostly exposed to downside, especially when interest rates have compressed so far over the past couple of decades.
“You have not really got that much upside from rates falling even further. So your main risk is that you don’t get your full amount of money back and you can miss out on the interest rates in the interim,” he added.
Mr Lovett-Turner also cautioned that investors need to understand how much return they will get as well as the risk profile and the level of risks they are taking with the yield.
His firm is talking to more wealth managers and multi-asset managers about these types of investments.
Mr Lovett-Turner added: “They have been big backers of some of these funds.
“Wealth managers also feature pretty highly on a number of these registers. [This sector is] one of the more esoteric asset classes wealth managers have shied away from, but as understanding builds and asset classes become more familiar in the listed space, people are taking an interest and taking a look at them.”
While the outlook may seem wholly positive for this sector, with the UK contending with Brexit negotiations, a deteriorating credit cycle and potentially higher interest rates, it would still be wise to apply some caution to the optimism.
Ima Jackson-Obot is a features writer for Financial Adviser
