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Private debt is set to benefit from Brexit – study

Senior debt strategies are largely protected from low GDP growth and shifts in inflation, unlike investments in equity and bonds, a report has claimed.

Private debt and liquid alternatives are set to be winners from the UK’s vote to leave the European Union, a study has claimed.

As many predict a downturn in the UK’s economy following the vote for Brexit, the consultancy firm bfinance argued that it is the asset classes least tied to the effects of low GDP growth and less sensitive to changes in inflation, such as private debt, that are set to benefit long term.

With banks retreating from the market, the report said senior debt strategies would attract investors with their high yields and insulation from the most adverse effects of macroeconomic uncertainty. Mezzanine investments will not fare as well, however, because they have “less of a cushion to protect loans from value declines”.

“Private debt and liquid alternatives stand out as the best performing asset classes following the referendum vote, and one we expect to have higher relevance for asset owners in the coming months,” said Toby Goodworth, head of risk and diversifying strategies at bfinance and one of the authors of Working through the Implications of Brexit.

“Returns across the various asset classes demonstrate that financial markets have been generally resilient past a short initial period of sell-off … it feels as if the markets shrugged off Brexit and decided not to respond to the potential impact until the publication of the first economic date post-Brexit.”

Last week, a survey by Elian showed a number of institutional investors are planning to increase their allocation to private debt following Brexit. The UK-based advisory firm reported that 41 percent of respondents would increase the proportion of their portfolio to the asset class. The study also found that three-quarters of respondents found their investments “exceeded expectations”. The study tracked the views of 88 institutional investors.