--- title: "The Looming Debt Ceiling: A Case for Private Credit" description: "The Looming Debt Ceiling. Amidst the gloom and doom of mounting debt, there's an alternative avenue that investors can explore: private credit." --- [![Prime Meridian Capital Management](https://www.pmifunds.com/hubfs/Branding/pmifunds-logo.svg)](https://www.pmifunds.com/) [![Prime Meridian Capital Management](https://www.pmifunds.com/hubfs/Branding/pmifunds-white-logo.svg)](https://www.pmifunds.com/) - About Us - [About Us](https://www.pmifunds.com/about) - [Recognition & Awards](https://www.pmifunds.com/awards-recognition) - [Team](https://www.pmifunds.com/team) - Our Strategies - [Investment Strategies](https://www.pmifunds.com/strategies) - [Special Opportunities Fund](https://www.pmifunds.com/special-opportunities-fund) - [Income Fund](https://www.pmifunds.com/income-fund) - [Non-Performing Loan Fund](https://www.pmifunds.com/npl-fund) - Insights - [Insights](https://www.pmifunds.com/insights) - [Events](https://www.pmifunds.com/events) - [Videos & Podcasts](https://www.pmifunds.com/video-podcast-resources) - [Contact Us](https://www.pmifunds.com/contact) [Contact Us](https://www.pmifunds.com/contact) # The Looming Debt Ceiling: A Case for Private Credit September 25, 2023 In the world of finance and economics, few topics can stir up as much debate and concern as the looming debt ceiling. With the United States' national debt reaching unprecedented levels, it's a critical issue that demands attention. However, amidst the gloom and doom of mounting debt, there's an alternative avenue that investors can explore: private credit. In this blog, we'll delve into the significance of the looming debt ceiling and discuss how private credit investments can provide a silver lining amid these fiscal uncertainties. The Debt Ceiling Explained Before we dive into private credit, let's clarify what the debt ceiling is and why it's a matter of concern. The debt ceiling is a statutory limit set by Congress on the amount of debt the U.S. government can incur. When the government spends more money than it collects in revenue (a common occurrence), it borrows money by issuing Treasury bonds to cover the deficit. However, the debt ceiling places a cap on this borrowing, and once that cap is reached, the government cannot issue more debt to meet its obligations. The prior debt ceiling was $31.4 trillion.  Since not everyone is gifted at math, let's pause for minute to reflect on this number.  Let's say you woke up one morning and realized you had an unknown trillionaire Uncle that passed away and left you a trust that would pay you $1 per second for the rest of your life.  This is an absolute windfall and you and your family would never have to work again the rest of your life.  You would be earning a cool $1 million for every 11 1/2 days that you stay alive.  Not bad, but how long would it take to earn $1 trillion or even $1 billion? If you can last another 31.7 years, you would have earned $1 billion - a massive fortune indeed.  But there is no anti-aging program in the world that will keep you alive long enough to see $1 trillion as that will take over 31,709 years to achieve.  And the prior debt ceiling was $31.4 trillion!  Until last week when the Congress agreed to "suspend" the debt ceiling by increasing defense spending to $886 billion while keeping a lid on non-defense spending.  There are no budget caps after 2025 (but no worries, I'm sure they will all work it out lol). The Benefits of Investing in Private Credit Now, let's explore how private credit investments can offer a unique advantage in these uncertain times: 1. Diversification:  Private credit investments provide diversification benefits to investors. Unlike public equities and bonds, which are often correlated with broader market movements, private credit investments can be relatively insulated from stock market volatility. This diversification helps mitigate risk in a portfolio. 2. Steady Income:  Private credit investments typically offer steady income streams in the form of interest payments. These payments are often fixed or tied to a benchmark, providing investors with a predictable source of income, even in uncertain economic environments. 3. Low Correlation with Public Markets:  Private credit investments are less sensitive to the whims of public markets. They tend to have lower correlation with traditional asset classes like stocks and bonds, making them valuable for risk management and portfolio stability. 4. Yield Potential:  Private credit investments can offer attractive yields, often exceeding those available in public markets. Over the long run, there will indeed be short periods (6 to 24 months) where any investment in the world will underperform, but a very well managed private credit fund will usually outperform treasuries and corporate bonds over most rolling 36–60-month periods. 5. Direct Lending:  Private credit allows you to become a lender, cutting out intermediaries and potentially earning a higher return on your investment. It's important to note that private credit investments come with their own set of risks, including default risk and illiquidity. Due diligence and careful consideration of your risk tolerance are essential when venturing into this asset class. Achieving long term investment success in any asset class is not easy and to properly manage risk, it can be quite time consuming and complex.  One alternative is to invest in a diversified and professionally managed private credit fund.  Be sure to conduct thorough research and do your due diligence, though. Is the fund manager registered with the SEC?  How much experience does the fund manager have? Have they navigated economic downturns and stressed markets in the past?  How long is the track record?  How does the performance look (terrible, too good to be true, or good but realistic)?  Is there any leverage (borrowing money to increase risk and potential return)? What is the Sharpe ratio and standard deviation (to measure the amount of risk taken to achieve the returns)?  How is the portfolio valued? The last question is very important as an improperly valued portfolio can blindside you with unexpected losses in the future (the institutional gold standard is Discount Cash Flow valuation methodology valued by a 3rd party valuation agent). About Prime Meridian Prime Meridian Capital Management is an SEC registered Private Credit investment management firm specializing in consumer, real estate, small business loans, and secured credit facilities, as well as insurance assets, litigation finance and royalties. Prime Meridian has deep roots in the FinTech and Private Credit ecosystems. The firm has 23 counterparties, and the funds are valued monthly by a 3rd party valuation agent using a Discount Cash Flow (DCF) methodology.  Since inception the firm has funded over $1.7 billion in private credit assets. [Return to Insights](https://www.pmifunds.com/insights/) ## Subscribe today to receive our latest News & Insights! Receive our latest stories delivered monthly directly to your inbox. [Subscribe](https://www.pmifunds.com/insights/the-looming-debt-ceiling-a-case-for-private-credit#popup-00) ## Subscribe Now **Please fill in the required fields below.** ![Prime Meridian Capital Management](https://www.pmifunds.com/hubfs/branding/pmifunds-gray-logo.svg) 2121 N. 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Any offer or solicitation of an investment in the funds may be made only by delivery of the Memorandum. Before making any investment in the funds, you should thoroughly review the Memorandum with your professional advisor(s) to determine whether an investment in a Fund is suitable for you in light of your investment objectives and financial situation. The Memorandum contains important information concerning risk factors, including a more comprehensive description of the risks and other material aspects of an investment in the funds, and should be read carefully before any decision to invest is made. The funds are only open to investors fitting the definition of an “accredited investor” as that term is defined under Rule 501 of Regulation D of The Securities Act of 1933. An investment in the funds, like all investments, contains risk including the risk of total loss, and may not be appropriate for all investors. Any performance information shown on this website is presented net of all expenses, including management fees, performance fees and other expenses including portfolio-related expenses. Returns assume the reinvestment of all capital (including distributions where applicable) on a monthly basis. The performance data represents composite fund returns, and individual investor returns may vary higher or lower from the composite return due to timing of an investment and actual fees being charged. Past performance is not indicative of future returns. Any awards or other rankings listed on this site are not indicative of future performance.  These awards or any other rankings and/or recognition by unaffiliated rating services and/or publications should not be construed as a guarantee that an investor should or will experience a certain level of results or satisfaction if they invest with Firm, nor should it be construed as a current or past endorsement by any of our investors. Firm did not pay a fee to participate in these awards or ranking surveys. In addition, any projections contained on this website (including targeted returns, opinions, estimated fees, predictions or expectations about any future event) are based on a variety of estimates and assumptions by Prime Meridian Capital Management, including, among others, estimates and assumptions regarding future operating results, the value of assets and market conditions at the time of investment and disposition, interest rates, and other realization events. Performance estimates and underlying assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive and financial risks that are outside PMCM’s control. There can be no assurance that the assumptions made in connection with any projections will prove accurate, and actual results may differ materially, including the possibility that an investor may lose some or all of any invested capital. ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Don Davis", "url" : "https://www.pmifunds.com/insights/author/don-davis" }, "dateModified" : "2024-07-19T17:48:45.987Z", "datePublished" : "2023-09-25T04:00:00.000Z", "headline" : "The Looming Debt Ceiling: A Case for Private Credit", "mainEntityOfPage" : { "@id" : "https://www.pmifunds.com/insights/the-looming-debt-ceiling-a-case-for-private-credit", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.pmifunds.com/hubfs/Branding/pmifunds-logo.svg" }, "name" : "Prime Meridian Capital Management" } } ```