Private equity research firm Preqin published a special report this week focusing on private debt. The report emphasizes that private debt “continues to grow as an asset class with each successful fundraising cycle and heightened awareness from institutional investors seeking a viable alternative to bolster both fixed income and opportunistic portfolios.” Preqin also notes that it has identified a strong market appetite for private debt from over 1,000 institutional investors.

Private debt market offers alternative to traditional banking

Preqin’s special report highlights the “clear correlation between the structure and performance timetables of private debt and fixed income products, specifically in the emergence of direct corporate lending.” The report also points out that the relative flexibility of a debt provider versus a bank can dramatically “speed up the underwriting and financing processes for a mid-market borrower, as well as offer more flexible loan terms due to the motivation of fund managers ready to deploy accrued investment capital.”

Continued growth in private debt fundraising

Private debt

According to Preqin, fundraising in all areas of private debt is up, with interest especially strong since 2008. In fact, the number of private debt related funds closed more than doubled from 2009 to 2013, as can be seen in Figure 1.

Private debt

The popularity of private debt funds among investors can be seen in both the total number of funds closed and aggregate capital raised. The overall annual capital raised has surged impressively from around $23 billion in 2009 to more than $77 billion in 2013. Moreover, the upper range of fund sizes has increased from ballpark $3 billion in 2009 to well over $5 billion in 2013. This powerful growth trend highlights the increasing attention that is being paid to the asset class.

Private debt

Of note, since Preqin’s began its private debt-focused sector research back in 2013, more than 680 fund managers have been identified, and these managers oversee more than 1,500 closed-end private debt vehicles. The funds represent a variety of strategies, but nearly all focus on direct lending, mezzanine and distressed debt funds in North America and Europe.

Private debt

In a not too surprising aside, 90% of private debt fund managers are based in North America or Europe.

More growth in 2015

The Preqin report concludes by noting the results of its recent survey of institutional investors “…indicates continued growth in the amount of capital entering the direct lending space over both the remainder of 2014 and into 2015.”