medium · Private Credit loan-structures-instruments
A direct lending portfolio has a 10% concentration in healthcare and 10% in cyclical manufacturing.
If the healthcare sector experiences a reimbursement cut and healthcare loan PDs increase by 5%, while the rest of the portfolio is stable, how does this affect the overall portfolio's risk profile compared to a single-sector fund?
- The impact is dampened by industry diversification, as the loss is localized to one sector.
- The portfolio will experience a full recovery within one quarter due to Level 3 smoothing.
- The risk profile is identical if the healthcare loans have the same credit ratings.
- The diversified portfolio is more risky because of exposure to multiple industries.
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