ALFI offers higher yields primarily due to its private nature and the associated liquidity premium.
Private Nature and Liquidity Premium
Unlike publicly traded investments, private credit is not easily bought and sold. This illiquidity demands a premium – an additional return that compensates investors for the longer holding periods.
Expertise and Complexity
Sourcing, structuring, and managing private credit transactions require significant expertise and due diligence. This complexity justifies the expectation of higher returns to reward investors for the associated effort and risk.
Market Inefficiency
Private credit markets often exhibit lower transparency and efficiency compared to public markets. This relative inefficiency can create opportunities for higher returns.