In the pursuit of higher yields, investors have had to contend with an era of taking on risk and reducing liquidity. Nominal bond yields were low, and the alternatives pushed investors up the risk curve.
Public markets like bonds and equities are transparent and liquid, making them the epitome of price discovery efficiency. The assets trade openly on exchanges and allow for real-time price updates and broad participation. Information dissemination is widespread and aids in accurate price determination. In other words, prices are determined by the collective wisdom of investors.
While A-REITs provide daily price updates the prices may not fully reflect the underlying asset values due to factors like market sentiment, interest rates and the overall economy. Moreover, they typically invest in a diverse portfolio of properties, making it challenging to gauge the intrinsic value of individual assets. Notable A-REITs include Goodman Group, Dexus and Charter Hall.P/ASX 200 A-REIT index in Australia fell 20.
In private credit, lenders and borrowers negotiate terms directly which are often guided by the specific circumstances of the borrower and lender, making each deal distinct. This bespoke approach implies that prices are determined less by market forces and more by negotiation prowess and the creditworthiness of the borrower.
LPX group have a global private credit gauge – the DLX Direct Lending Index where investors can see the performance of a proxy global private credit exposure including companies such as. Interestingly, it fell 4.73 per cent in 2022, with a historic yield of between 9 per cent to 12 per cent over the last 12 years.