“All investments carry some degree of risk.”
“Past performance is no guarantee of future results.”
These statements show up on websites, offering documents, and investor communications for good reason. Investing is inherently a risky business.
That’s why every investor should carefully consider their appetite for risk and the ability to sustain losses prior to investing. Risk tolerance factors into how portfolios are constructed, since higher returns generally accompany greater risk. In public markets, valuations, credit ratings, and other data can help an investor quantify the potential risk of an investment.
For investors in private markets, which typically have more limited information publicly disclosed and less deep liquidity, due diligence is of paramount importance. A critical risk management tool, due diligence is the process of gathering and analyzing information to make well-informed decisions and managing investment risk at the desired level. That has historically proven challenging for investors in private credit transactions, which previously had poor discoverability and lacked standardized, transparent data. Standardization can help investors compare different offerings across a wide array of attributes prior to investing to better understand the data and risk profile.
In considering their appetite for risk, investors should also factor in liquidity. While the private credit markets typically have less liquidity than public markets and there is no secondary trading, the shorter duration of private credit transactions could serve as a stand in for liquidity. As an investment matures, the investor can decide to reinvest or hold onto funds should they need liquidity for other purposes.
How Percent supports investor due diligence
Investors should take their right and obligation to investigate very seriously. To support them in conducting due diligence, Percent is working to bring standardization to the private credit markets. We believe it should be easier for investors to find opportunities, access the available data and information provided as part of the underwriting process, and monitor borrower health and deal performance on an ongoing basis.
On the Percent platform, investors have access to the underlying documentation provided by borrowers and underwriters so they can do their homework prior to investing. Investors can evaluate the terms and conditions of different deals, including fundamentals on the borrower. Available information could include financials, governance documents, and a view of assets being used to securitize a transaction.
Our platform also allows investors to specify the terms at which they are willing to invest. That way, investors only invest in deals that meet their defined parameters. Then, during the lifecycle of the deal, they can monitor the health of their investments using our proprietary surveillance data.
We encourage all investors to thoroughly vet all investments prior to investing and to take advantage of the tools available on Percent.
For investors who understand and can tolerate the risk – such as the accredited and institutional investors who qualify to use Percent – the opportunity to access yield that may outperform benchmark rates can make private credit a compelling alternative. Additional benefits include portfolio diversification across asset classes and geographies and investments that may be largely uncorrelated to the public markets.