Private debt typically refers to credit investments in private companies and that are not traded on a liquid secondary market. Credit can be either corporate or asset based. Private debt strategies are typically categorised by lending at different points of the capital structure, or with a specific risk profile. Examples include senior secured/first lien debt, junior and mezzanine debt, asset backed lending, structured debt/preferred equity, distressed and special situations, and distress for control. Private debt returns are most commonly primarily income in nature, except for distressed investing, which has a return profile closer to private equity due to its equity, or equity-like risk.
Private equity refers to investments made into companies that are held privately and not publicly traded. Private equity investments can be made directly into a company, or capital can be allocated to a fund manager, who creates a pooled vehicle to invest clients’ capital. Private equity strategies are often categorised by size of target investment, for example large/mega buyout, upper middle market and lower middle market. Funds also can have a sector and/or geographic focus. Private equity returns primarily consist of capital appreciation.
Venture capital refers to investments in early-stage companies that are pre-revenue and extends through to later-stage companies that have developed a new product/service and commenced generating revenue. Returns primarily consist of capital appreciation and are targeted to be outsized due to the higher risk nature of venture capital investing. Venture capital funds typically have a high dispersion of returns, with losses being offset by outsized winners.
Infrastructure assets are long-life, real assets that are intended for public use and provide essential services. Infrastructure assets are expected to generate relatively stable cash flows, which typically increase with economic growth and/or inflation. They may also achieve capital appreciation due to operational improvements or growth strategies. Infrastructure investments are categorised by the nature of the target assets, and the extent of operational improvement potential. Strategies include core, core plus and opportunistic infrastructure. Infrastructure investment returns consist of both capital appreciation and a running yield.
Growth equity refers to investments in companies that are in a high growth phase of their development, often when the risk shifts from whether a product will gain market adoption to whether it can be sold profitably and/or generate cash flow. Companies are either cash-flow positive or expected to be so at some point in the foreseeable future, and have an established, viable product or service. The growth equity phase precedes private equity. Growth equity returns primarily consist of capital appreciation.
Real estate investment is categorised by sector such as commercial, industrial and residential. Real estate is land and everything permanently fixed thereto. Fund strategies are categorised by the nature of the target assets and whether value creation forms part of the business plans. Strategies include core, growth, opportunistic, transition use and distressed investment.
