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The Pros and Cons of Investing in Private Debt

The article from Kiplinger discusses the pros and cons of investing in private debt, which includes loans made by non-bank institutions to companies or individuals. Pros include potentially higher yields than traditional fixed-income investments due to the riskier nature of the borrowers, diversification away from public markets, and the ability to negotiate terms directly with borrowers. Private debt can also offer floating interest rates, which can be beneficial in a rising rate environment. However, cons are significant: private debt investments often lack liquidity, meaning they can be hard to sell quickly. They also carry higher credit risk, as these loans are typically made to borrowers who might not qualify for bank loans, increasing the chance of default. Additionally, there's less transparency and regulatory oversight compared to public markets, which can lead to higher due diligence costs and complexity in understanding the investment's true risk. The article also notes that while private debt can be part of a diversified portfolio, it requires a thorough understanding of the underlying credit, legal structures, and the economic environment.

Read the Full Kiplinger Article at:
[ https://www.kiplinger.com/investing/pros-and-cons-of-investing-in-private-debt ]