Updated to reflect 2023 RETURNS
In December of 2022, the global investment company KKR published a study on the benefits of investing in private credit in the current macroeconomic regime. Private credit can provide several benefits to investors who wish to diversify their portfolios while generating risk-adjusted returns.
The KKR study asserts that “this cycle is a ’different one‘ remains unchanged, as we still see a structurally higher resting heart rate for inflation going forward. Key to our thinking is that wage inflation, the energy transition, continued rental income growth due to structural housing supply and demand issues, and geopolitical concerns impacting supply chains are now all more structurally inflationary than in the past.”
Metro Tader Services has offered private credit investments in sustainable livestock production since 2017, and they remain some of our most popular and successful vehicles. They are collateralized with real assets, including land, farm equipment, and livestock inventories. Ranchers come to us because of the flexible offering terms and streamlined capital raise process that we provide compared to traditional ag lenders. From 2020 through 2023, the average returns of our private credit livestock offerings was 14.2%.* Private credit investments can carry a higher risk premium due to their illiquidity and the fact that they are not publicly traded.
Farmers, ranchers, and agribusiness owners are facing one of the most constrained credit markets in decades. The producers and small business owners we speak with are constantly in search of flexible loan sources to fund business expansion or working lines of credit. Over 40% of respondents to a recent ag lending survey by Farmer Mac reported tightening underwriting standards (48%) and loan terms (42%) in 2023 (up from 30% and 22%, respectively, in 2022). The same survey reported that demand for both loans secured by farmland and agricultural production loans increased in 2023. Respondents anticipate that loan demand for both categories will continue to increase over the next 12 months.
Past performance is not an indicator of future returns.
Aside from the potential of out-sized returns in a challenging market environment, private credit offers a number of benefits to investors:
Steady income: Private credit investments can be attractive to investors who are seeking to generate passive income from their investments. Metro Tader Services debt investments have varying payment frequencies, ranging from quarterly to annually.
Low correlation to public markets: Private credit investments often have a low correlation to publicly-traded stocks and the corporate bond market, which can help to balance out a portfolio and reduce volatility. The KKR study suggests that investors move out of a traditional 60/40 stock/bond allocation, and advises that investors might consider shifting up to 10% of their portfolio into private credit over several quarters.
Relationship-based lending: Metro Tader Services maintains an ongoing relationship with all of its agriculture operators. Investing in our private lending opportunities provides support to American farmers and ranchers and creates steady jobs in rural areas, while strengthening agricultural supply chains.
Diversification: Private credit investments can provide investors with exposure to a diverse range of industries and companies that may not be available through public markets. In Metro Tader Services’ case, our investments focus on livestock, which is an industry isolated from mainstream investment sectors. Portfolio diversification helps reduce portfolio risk and increases returns.
In December 2023, Metro Tader Services launched a private credit fund available to accredited investors to deploy capital more efficiently to our farming and ranching partners. Register below to learn more.
*Past performance is not indicative of future results and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable. Please read all offering documents carefully prior to investing.
Annual realized returns (IRR %) are based on net cash flows from invested capital, coupon payments, accrued interest, and return of invested capital across all realized fixed income investments during each annual period from 2020 through 2023. The actual cash return on investment also takes into consideration the weighted average time before a Metro Tader Services receives the bond's cash flows. In addition, the annual historical returns are a blend of varying credit facility maturities.