Stocks may be the perennial favourite destination for retail investors but institutional and wholesale investors have been chasing a very different kind of opportunity. Private credit has ballooned in the last few years, with the Australian market estimated to be worth close to $200 billion. Globally, Bloomberg estimates that the market could be worth as much as US$1.7 trillion and a whole slew of global and local firms want a piece of the pie. 

But while it may be the hottest trade on the street, it's also one of the most difficult to understand. Luckily, for you dear Livewire reader, we have drafted in someone who can explain it all in plain English. 

AltX co-CEO and co-founder Nick Raphaely has been running private lending businesses since 2005. When we asked Raphaely to explain what private credit means to him, this is how he put it:

You can be the bank," Raphaely explains. "What that means is that when you think about how a bank lends money to a borrower - they do a valuation, they write loan documents, they register a mortgage, the borrower pays monthly interest and capital back at the end. It all comes to the bank."

"But when you do it as a private investor, it's exactly the same except the investor puts up the capital ... the investor literally gets to be in the position of the bank. The bank model has been successful for so long and our proposition to investors is that you get to enjoy the riches that the banks have enjoyed for so long," he adds.

But when you become the bank, you also take on the risk. To explain this asset class and how they are making sense of its place in today's markets, Raphaely joined me for an episode of The Pitch.

Published by Livewire Markets on 8th July 2024.