• Tweet
• Share
• Email this.

By Liu-Yue (Louie) Lam, Co-Founder, Chief Investment Strategist, Oxstone Capital Management,

In the current hostile investment environment a growing new alternative asset class we termed as ‘Private Commercial Credits’ or P.C.C. can be a potential solution to both equity and bond investors.  Private credits can be an attractive alternative to the traditional bond market.  If P.C.C. can capture even a small slice of the traditional capital allocated to the bond market, then the market potential can be enormous.

We expect ‘Private Commercial Credits (P.C.C.)’ as an alternative asset class to be a huge success as the investment community begins to recognize the attractiveness of a stable income source where the capital may be protected from extreme market volatility by collateralized assets.   Simply holding cash or cash-like investments such as US Treasury Bills are no longer a viable option.  Cash earned roughly 3.7% over the past 84+years but inflation as measured by CPI averaged 3.1% over the same time period.  We expect the excess money supply to fuel much higher inflation; further eroding cash-like investment options.

Value Proposition – Why Investors should Invest in Private Commercial Credits

The value proposition to investors is the opportunity to earn a consistent high single digit to low double digit income source that may also be principal protected by collateral and is also uncorrelated to traditional asset classes.  This should be very attractive given the current volatile investment environment we face today in both the bond markets and the equity markets.  It is also very attractive relative to other competing alternative investment options; offering equity-like returns (high single digit returns to low double digit returns), but with much lower volatility.  In terms of risk and reward – private commercial credits may potentially provide better risk-adjusted returns than current equity and bond investments.  This is perfect for long term passive institutional investors like insurance companies and pension companies that require targeted returns to fund long term commitments.

In addition, the best argument for investing in Private Commercial Credits is that it’s an uncorrelated asset class.  This provides additional diversification benefits to any institutional asset portfolio.  We would argue that any truly diversified institutional portfolio should now have a dedicated position to hold at least 4-5% of their portfolios in this new asset class-(Private Commercial Credits) because it will not only lower the total volatility but also  provide a stable income source in any investment portfolio.

---

Tags: alternative asset class, big picture, bond markets, collateral, diversification benefits, equity markets, equityl-like returns, food for thought, inflation, Institutional Investors, Liu-Yue (Louie) Lam, lower volatility, Oxstone Capital Management, Oxstone Food for Thought, Oxstone Investment Commentary, oxstones, oxstones investment club, P.C.C., passive institutional portfolios, principal protection, private commercial credits, risk adjusted returns, stable income source, uncorrelated asset class, volatile investment environment