Investors have expressed a strong appetite for exposure to private debt funds recently, with 57% of investors surveyed by Preqin in Q1 2015 expecting to increase their allocation within the next 12 months.

In its Q1 2015 quarterly update “Private Debt”, Preqin notes direct lending funds account for the largest amount of capital.

Fund raising in first quarter of 2015

According to the Preqin report, there were 19 private debt funds which held a final close in the first quarter of 2015, which is the lowest number of fund closes since Q3 2012, when only 15 vehicles held final closes. In Q1 2015, the 19 private debt funds secured an aggregate $16 billion in commitments, a drop from $22 billion raised in Q42014 by 28 funds, though it is an increase on the amount of capital raised in the first quarter of 2014, when $12 billion was accumulated:

Global private debt fund raising

As set forth in the following graphs, mezzanine fund raising accounted for 70% of capital raised, while North America continued to dominate the fundraising market in Q12015:

Breakdown of private debt fundraising

As can be deduced from the following table, the bulk of the mezzanine fundraising was raised by GS Mezzanine Partners VI, which closed in February having raised $8 billion:

Top 10 private debt funds

Private debt funds in market

Turning its focus on the private debt funds in market, the Preqin report points out that at the start of Q2 2015, there were 237 private debt funds in market targeting $122 billion aggregate capital commitments. As can be seen from the following table, direct lending funds account for the highest proportion of these funds, both in number and amount of capital being targeted:

Private debt funds by fund type

As in the case of fund raising in Q1 2015, North America continues to account for the largest amount of capital currently targeted with $63 billion across 125 funds. However, Europe continues to grow as a region for private debt fundraising, with 66 funds looking to secure total commitments of $46 billion:

Private debt funds by geographic focus

The following table captures the top 10 largest private debt funds currently in market:

Top 10  funds in market private debt

Strong appetite from investors

The report highlights strong investor appetite for exposure to private debt funds, with 65% of respondents anticipates to enhance their allocation to private debt in the longer term, with 57% expecting to enhance their allocation within the next 12 months. Moreover, 44% of respondents to Preqin’s Q12015 survey plan to make their next commitment in the first half of the year, while 20% anticipate making a commitment during the second half of 2015:

Strong appetite from investors private debt

Slicing the data further, Preqin notes 62% of respondents consider direct lending as the most promising type, with Europe currently being viewed as presenting the most favorable investment opportunities for 69% of investors:

Best investment opportunities private debt

Despite a drop in total fundraising for private debt funds in Q1 2015 compared to Q4 2014, dry powder within the industry has increased by 14% over the quarter to a total of $158 billion across all private debt strategies. Moreover, through Q1 2015, Europe-focused funds witnessed the largest proportional increase in dry powder, increasing by 25% since December 2014, with available capital currently standing at $46 billion:

Private debt dry powder private debt

The Preqin report notes median net IRRs for private debt funds with vintage years 2007-2012 typically hit the low double digits. As regards risk-return profiles for various alternative strategies are concerned, the report points out that direct lending and distressed debt positioned relatively attractively on the spectrum in terms of return per unit of standard deviation:

Median net IRR and risk-return private debt