Why Private Debt is a Great Long-Term Investment Strategy

Private debt can offer substantial returns as a long-term investment. Learn how a private debt strategy can yield returns for you.

While short-term investments can be lucrative and, at times, quite thrilling, long-term investments offer stable income to knowledgeable and savvy investors. Using private debt for long-term investments can produce excellent returns for seasoned investors and newcomers alike. This is particularly true when you work with an experienced company like Capstone Capital Partners. Private debt offers high returns while allowing you to minimize your risk. As banks scale back on many forms of lending, more and more borrowers are turning to private lenders. Read on to learn why a private debt strategy might work well for your long-term investment needs.

Why invest in private debt?

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Private debt offers many significant benefits to investors looking for stable long-term income.

High yields

Investing in private debt can produce greater returns than many other fixed-income investments, meaning investments designed to generate regular income in predictable amounts. This is partly due to the “Illiquidity premium,” which rewards investors who put their money into illiquid investments.

“Liquidity” describes how easily an investor can convert their investment to cash. Publicly traded stocks, Treasury bills, and other regulated securities are highly liquid. It is relatively easy to sell these types of investments for cash at readily available market prices. A liquid asset can be a short-term or long-term investment. The duration of the investment is often entirely up to the investor.

Private debt is an illiquid asset. Once an investor has put their money into private debt, they cannot easily convert their investment back to cash. They may be able to sell their investment to another investor, but no markets exist to facilitate this kind of transaction. Illiquid investments tend to be long-term as a result.

The illiquidity premium compensates investors for the additional risk they take. With private debt, investors risk default by borrowers and changes in the economy. They receive greater returns through factors like higher interest rates.

Strong growth potential

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Private debt has grown steadily over the past ten to fifteen years. Since the global recession, its growth rate has kept pace with economic growth. This suggests that it is growing sustainably rather than forming a bubble.

New markets and opportunities are opening up for private debt. Banks have retreated from many forms of lending since the financial crisis of 2008. This is due, in part, to more stringent banking regulations brought on by the conduct that led to the crisis. Banks have, at times, found themselves with less liquidity due to regulations requiring them to keep larger amounts of cash on hand. These regulations exist at both the national and international levels. Private lenders are stepping in to fill the gaps left by large institutional lenders.

Another factor contributing to the rise of private debt is a similar increase in private equity. More businesses rely on private investors. As that market grows, so does the demand for private debt lenders who can provide flexible financing.

Guidance from experienced lenders and underwriters

An experienced private lender like Capstone can help you understand how to invest in private debt. The industry has years of experience evaluating loan applications and making loans. As a private debt investor or private lender, you will have access to this expertise.

What opportunities does Capstone offer?

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Capstone Capital Partners offers two opportunities to enter the private debt market. One is an excellent way for investors to yield returns. The other allows individuals to become lenders themselves.

Growth Fund

The Capstone Growth Fund provides capital for hard money loans to real estate investors, developers, and builders throughout Texas. The loans may be used in new construction, rehabilitation, redevelopment, or fix-and-flip projects, to name but a few possibilities. Investors in this fund receive quarterly returns with a target of 10%.

Fractional loan program

The fractional loan program allows you to become a private lender through Capstone Capital Partners. Rather than passively investing in a fund, you can take part in the lending process by reviewing loans and selecting ones that meet your criteria. You might want to lend money for projects in a certain area, or you might be interested in particular types of projects. The fractional loan program allows you to choose where your money goes.

Once you have contributed to a loan, Capstone will handle the details of servicing the loan. You will receive interest payments as the borrower makes them. At the end of the loan term, you will receive the remainder of the loan principal. You may then choose more loans to help fund.

Learn more

Real estate debt investments provide good returns with minimum amounts of risk. With Capstone Capital Partners Texas investors have access to hyperlocal trust-deed and first-lien investments. You can even become a lender yourself with our fractional loan program. Please contact the Capstone team today through our online contact form to learn more about our investment opportunities.