Institutional investors most bullish on alternative credit over near and longer term, says report

By Daniel Lanyon on Friday 24 February 2017

Alternative Lending

Prequin's latest research into attitudes among global institutional investors into the alternatives space finds alternative credit comes out on top for sentiment.

More asset allocators of institutional portfolios expect to increase their investments to private debt compared to any other type of alternative assets, according to a new survey from Prequin.

The Prequin Investor Outlook: Alternative Assets H1 2017 – conducted in December 2016 - examined sentiment to Private Equity, Hedge Funds, Real Estate, Infrastructure, Natural Resources and Private Debt among 500 institutional investors.  It found the latter asset class the area investors expected most to increase their allocations to in both the next 12 months as well as the longer term.

In the next year 57 per cent of investors said they would increase private debt allocations compared to 40 per cent saying they would up exposure to private equity. Just 11 per cent said they would reduce allocation.

Source: Prequin

Over the longer term, just 8 per cent of existing investors planned to decrease their private debt allocations, while nearly two-thirds intended to increase their allocations.

Source: Prequin

The volume of asset under management (AUM) held by private debt fund managers during the past decade has soared. Most experts agree that this can be attributed to the financial crisis and the subsequent systematic retreat of banks from the commercial lending space.

This has, accompanied by low interest rates, technological innovation and poor returns from regular fixed income, prompted the growth. Institutional investors have continuously poured capital commitments into the asset class, which now holds $594bn in AUM, and includes strategies spanning the risk/return spectrum, according to Preqin.

“The positive outlook for the asset class is largely a product of the hugely positive investor sentiment: 93 per cent of investors we interviewed communicated that their private debt investments had either met or exceeded their expectations in 2016,” said Prequin.

Two of the most bullish on the asset class include South Korea’s KB Insurance allocates nearly a quarter (24 per cent) of its $23bn in AUM to the asset class, and Ivory Coast-based African Development Bank allocates 15 per cent of $35bn, Prequin says.

Institutional investors continue to outnumber private wealth investors in private debt: 85 per cent of investors are institutions, while 15 per cent manage private wealth. Public and private sector pension funds represent the largest proportions of investors in the asset class, 14 per cent and 16 per cent respectively, followed by foundations (13 per cent). 

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