By Daniel Lanyon on 11th November 2016
A study by fund research firm Elian points to ongoing enthusiasm among institutional investors for direct lending despite the increased uncertainty created by the EU referendum result.
Appetite for private debt exposure among institutional investors remains strong following the EU Referendum, according to a survey by fund services group Elian.
Brexit has been a pertinent market risk for investors for nearly six months and while the heady days following the vote have now subdued, and been somewhat subsumed by the US presidential election result, the ongoing effect on markets is apparent.
Nearly three-quarters - 73 per cent - of institutional investors, however, who took part in a survey said they will either increase their allocation or maintaining their existing level to private debt funds despite the greater market uncertainty.
“Brexit has done little to dent investor confidence in private debt as investors increasingly appreciate its ability to deliver steady levels of income in an environment dominated by political uncertainty and low interest rates. While it is likely that returns will not reach the heights we have seen in recent periods, private debt will continue to challenge traditional lending and assert itself as a standalone asset class,” says Paul Lawrence, group head of Funds at Elian.
UK investors currently have approximately £3trn in private debt, representing 6 per cent of their total assets, Elian says.
Post Brexit, the majority - 54 per cent - of investors said they are upbeat about the private debt market’s continued expansion over the year ahead, a marginal decline in sentiment from before the vote where 60 per cent of investors predicted growth. Although nearly one in five - 19 per cent said they think the private debt market will remain the same size.
“Private debt is a rapidly maturing industry, and one which, as the findings from recent research by Elian illustrate, shows no signs of slowing down. Given the current economic insecurity, private debt is poised to make even greater strides into the mainstream in the years ahead,” Tim Hames, director general of the British Private Equity and Venture Capital Association (BVCA) says.
The report also found that 41 per cent of investors are positive about the outlook for private debt, because of its robust performance in recent years. Nearly three-quarters - 70 per cent - of investors said their private debt investments had met or exceeded expectations, while only 13 per cent reported they had fallen short.
The study did find, in addition that regulation – and Brexit in particular – is the biggest challenge for portfolios, with 60 per cent of investors saying so.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.