Interest rates: Why now is the time to start investing in private debt

Most of us find comfort in routine. The morning alarm clock, the bus that’s always seven minutes late, the double-shot espresso order recited by a barista with uncanny recall abilities.Well before either Michele Bullock or Jerome Powell handed down their respective rate decisions for March, we knew the routine.While not as ingrained as a favourite coffee order, we have come to expect the same script of well-worn phrases from our central bank officials.

Banking regulation since the GFC has targeted bank balance sheets to ensure they are better capitalised and able, in a stress situation, to continue to fulfil their core functions in the financial system. For a start, the sector is showing no vestiges of a ‘too big to fail’ mentality while sitting at roughly $1.8 trillion. That’s dwarfed by the combined might of bank lending and bonds with upwards of $20 trillion under management.Counterparty risks for private debt are more bilateral, thus are extremely different to those that were in place before the GFC.

Think about those defensive businesses providing mission-critical services, presenting long economic lives, high barriers to entry, high capital value and elevated operating margins.

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