Amit discusses the world of performing credit that Cat IIAIFs operate in, which typically offer HNIs 12-14% net return over a 4-5 year period, with quarterly income payouts over the life of such closed ended funds.
Performing credit bridges funding gaps for established businesses that banks typically don’t venture into – which could include last mile funding for projects facing some over-runs or promoter funding to enable buying out co-promoters or PE investors and other such structured transactions.
Gross yields in such deals range between 14%-16%,enabling the funds to target 12%-14% net to their investors.
Deals are typically for 3-4 year periods or shorter in some cases. While the funds have a tenure of 5+ years, Amit says their targets are usually to pay back investors within 4 years, with quarterly payouts of income during the tenure.
Amit points out that long term equity returns are in a comparable range of 12-14%. While each asset class carries its own risks which need to be clearly understood, HNIs have an opportunity to target healthy returns over the next 4-5 years from such structured performing credit funds, provided they are comfortable sacrificing liquidity for this slice of their portfolio.