Decade-long expansion story loses shine even as managers position themselves to benefit
A slowdown in fundraising among private debt funds, as reflected in new data from Preqin, could signal difficulty for the industry.
According to figures released Thursday, private debt funds attracted US$107 billion in capital commitments from investors last year — the lowest level since 2015, when it hit US$104 billion — while global volume raised was 19% below the record set in 2017.
In a statement, Tom Carr, head of private debt at Preqin, said that the “shine has worn off” of the industry’s decade-long expansion story. He added, however, that “long-term appetite among investors remains robust,” with fund managers believing that “there is significant potential yet to be tapped.”
Private debt has emerged as a standalone asset class in the portfolios of institutions, reported Institutional Investor. Alternative asset managers have consequently positioned themselves to benefit; that includes JPMorgan Chase’s asset-management unit, which recently instituted a head of private credit to help drive a major expansion into that space.
At the end of last year, private debt funds — including those that lend directly to mid-sized companies— were said to have US$261 billion in total to invest at the end of 2019. It represents the lowest level of dry powder since 2017, which Carr suggested would be used by asset managers as proof that investment opportunities are still present.
But as the market gets more crowded than ever, an overabundance of managers chasing capital could make reaching targets difficult, Preqin said. At the start of 2019, a reported 399 funds were targeting a combined US$168 billion, compared to 436 funds seeking US$192 billion at the start of this year.
“Unless fundraising rebounds significantly in 2020, it seems likely that many of these funds will face a long and difficult road to raise capital,” the research firm said.