Uncovering Private Credit Opportunities In Times Of Volatility

Uncovering Private Credit Opportunities In Times Of Volatility


Prath Reddy, CFA, is President of Percent, the platform powering the future of private markets. Founded in 2018, the company leverages proprietary technologies, integrations, and data to bring first-of-its-kind transparency and efficiency to private credit transactions. To date, its platforms have powered more than $950 million in transaction volume in a multi-trillion-dollar private credit market.


Russ Alan Prince: Given recent market volatility, where can investors find opportunity? 


Prath Reddy: There are always opportunities to be found. In volatile markets, it’s important to be aware of timing as each market responds differently to events. Investors who can invest across any market—public or private, equity or debt—can pick and choose, paying attention to key market indicators.


Macro risks affect public markets first. Private debt, where Percent operates, is initially somewhat insulated from what’s going on in public markets. Even when it does catch up, it’s affected in less obvious and dramatic ways.


With the benefit of advance warning from public markets, underwriters of private debt typically have time to identify ways to restructure deals when there is any observable or anticipated deterioration in underlying credit quality. Lenders and investors can also command higher rates given broader market conditions. While it’s a more active approach to investing and private debt has its own set of risks, there are opportunities to exercise control and ultimately preserve capital against an uncertain backdrop.


Prince: What are Percent Blended Notes? How do they benefit investors?


Reddy: Percent Blended Notes give investors exposure to any number of Percent’s offerings and private credit transactions offered through the Percent marketplace. It’s analogous to a basket of ETFs in equity markets; each Blended Note has a theme and includes diversified assets. 


One Blended Note could be composed of US borrowers, while another includes only short-term or senior deals. The proceeds raised in each Blended Note are deployed into any number of underlying deals meeting the theme’s particular eligibility criteria. Investors gain exposure to multiple deals that adhere to specific themes and can build a portfolio of Percent Blended Notes based on their investment preferences and market views. 


Percent Blended Notes offer other advantages over direct lending to any one borrower. The deals in the Percent Blended Notes are generally short duration with embedded call options. As a result, underlying borrowers refinance those deals frequently, resulting in an effective duration that is typically shorter than the full term being marketed.


This gives investors the benefit of higher rates as each underlying deal is refinanced in a rising rate environment. Price downside is minimized since these securities are not liquid or tradeable and thus not marked-to-market. For example, you’re not buying a fixed rate bond but a note with a variable coupon. The variable rate is based on the aggregate interest payments made by all the deals that the Percent Blended Notes is participating in, less a 1% management fee.


These factors make Percent Blended Notes attractive to institutional and retail accredited investors, including high-net-worth investors looking for more control over their own wealth. Through Percent Blended Notes and our other offerings, Percent enables private debt to easily become part of asset allocation, supporting diversification and yield. Our platform provides extensive tools to conduct due diligence on the deal and borrower, with the security of comprehensive reporting, investment tracking, and investor support. 


Prince: Private markets have historically lacked transparency. How is Percent changing that?


Reddy: Technology and transparency have been in Percent’s DNA from the start. Our company was founded to address the information asymmetry in private credit markets head-on. We’re leveling the playing field to give investors more and better information on the deals they’re purchasing, including information provided by issuers raising capital in our standardized marketplace.


Through our platform, investors gain more transparency on each individual deal than is typical with other private debt deals. Often, we provide more information on the underlying transaction and the borrower than is even available in public debt markets. 


For example, many deals on Percent’s marketplace are asset-based, meaning the note is backed by a portfolio of assets whose cash flows repay the interest and principal. This is similar to asset-backed securities in public markets.


The SEC requires issuers of asset-backed securities to provide portfolio information at least quarterly to let investors know how those portfolios of assets have performed and how that translates to the performance of their deal. On the Percent platform, similar information is often provided daily and if not daily, then weekly or monthly. This provides unparalleled transparency into the assets underlying an investment.


Investors get regular updates on the cash flows coming in, overall collateralization, performance information on the underlying loans originated as part of that portfolio, delinquency rates, days past due analysis, and more. They also receive a tremendous amount of granular information, provided in a digestible fashion, giving them visibility into what’s actually underpinning the eventual performance of their note. 


To my knowledge, this cannot be found anywhere else, on any other platform, let alone in the open private credit market. This approach is of tremendous interest to institutional investors. We’ve had numerous conversations with them about leveraging this capability to offer the same level of transparency on their portfolios, even for transactions not done in the Percent marketplace. 


We remain determined to continue solving the longstanding challenges that exist within private credit markets. It’s inconceivable that institutional investors in private credit often don’t have the tools they need to evaluate their own portfolios, simply because until now there was no centralized market infrastructure akin to public markets. Percent has changed this, creating a standardized marketplace for all market participants – borrowers, investors, and underwriters – and providing unique access to the opportunities of private markets.



RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.


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