Ignas Šablevičius, Fund Manager of Capitalica Debt Fund at Capitalica Asset Management
Last year, interest rates soared to levels unseen in a long time, increasing the returns generated by investment instruments such as bonds and private debt. Annual returns of 10% or even higher were no longer surprising, leading a growing number of investors to incorporate such investments into their portfolios. While interest rates have dropped by around half a percentage point from last year’s peak, private debt remains an attractive investment.
Investing in corporate bonds or private debt can be a good alternative to other fixed-income options, such as deposits or government securities, which typically generate lower returns. This is especially true because private bond issuances and direct lending react more slowly to interest rate fluctuations, as they serve businesses that need alternative financing solutions that are difficult to access through traditional means or require specialized funding.
Meanwhile, looking at the stock market, it has become highly unpredictable in recent months, with major indices losing a significant portion of their yearly gains.
Another advantage of bonds and private debt as investment instruments is the periodic interest payments, which provide a steady income stream for investors.
Challenges for Debt Funds
Despite the appeal of these investments, local fund managers face challenges in attracting investor capital.
The geopolitical situation in the region has led some investors to direct their funds toward Western Europe or the United States. Others are concerned about potential changes in Lithuania’s pension system or negative media coverage about market participants or companies struggling to meet their obligations. Additionally, investor confidence in fund management teams and their track records plays a crucial role in decision-making, posing extra hurdles for new players entering the market.
On the other hand, a challenging environment forces market participants to improve—enhancing transparency, refining communication, and optimizing processes, which ultimately benefits both investors and the market as a whole. Capitalica Asset Management is already a well-recognized brand associated with high-quality projects, and with the launch of Capitalica Debt Fund, the team is working diligently to earn and maintain investor trust. Initial results and ongoing discussions with investors suggest that the fund is on the right track.
Since the fund’s inception, three investments have already been made, utilizing capital from its first long-term investors. Several new investors have committed to deploying funds, and over the next few months, the team plans to select and execute additional investments.
What Lies Ahead?
In both the short and medium term, the outlook remains favorable for debt funds. While interest rates in Europe have begun to decline, they are expected to stabilize above 2% in the long run, allowing investment funds to continue generating healthy returns.
Additionally, there are no signs that commercial banks will significantly increase their risk appetite anytime soon, meaning that small and medium-sized businesses will continue to rely on alternative financing sources.
The number of investors in the region is growing, along with financial literacy, providing a strong foundation for the expansion of capital markets. Furthermore, the share of bonds and private debt funds in the Baltic investment landscape remains significantly smaller compared to the Eurozone average, suggesting room for future growth in this sector.
