The world of credit investment is a diverse and fast-moving space. With more competition for deals than ever, credit investors need to be able to navigate these changing market conditions. Fund sponsors and investment management teams focus on credit instruments, distressed debt, equity, and trading strategies. These strategies range from loan origination to structured credit, including mortgage-backed securities, asset-backed securities, and CLOs.
The primary purpose of a credit investor is to earn a profit through lending money to individuals. The investor will take the risk of repayment at predetermined intervals, and may ask for collateral. If the borrower does not repay, the credit investor can seize the collateral. In some cases, this is a way to protect their investment.
Risks associated with credit investment include interest rate risk and non-payment. While the interest rates are often low in this area, investors looking for yield may find this option attractive. In fact, corporate credit has historically outperformed higher quality fixed income sectors. It is important to understand the risks and rewards of credit investment before entering into it.
Credit investment strategies can help diversify portfolios while reducing risks. These investments are made through structured credit products, which can earn higher returns and customize credit risk exposures. Moreover, structured credit products often rely on the contractual obligation of borrowers to repay the money. Typically, this involves the purchase of a mortgage agreement, which becomes a securitization pool.