Private debt funds to invest more in 2017, increase 'dry powder'

By Daniel Lanyon on Tuesday 9 May 2017

Alternative Lending

Preqin’s latest research suggests half of all fund managers are set to increase private debt investment significantly.

Preqin’s latest research suggests half of all fund managers are set to increase private debt investment significantly.

Private debt fund managers intend to deploy more capital in 2017 than the previous year, despite an environment of high valuations and stiff competition, according to a survey conducted by Preqin.

As part of the disintermediation of banking in the past decade hundreds of fund managers have moved into more and more lending niches following the retrenchment of incumbents as well as investor demands for fixed income like exposure away from the bond market. This universe of markets, broadly known as Alternative Credit, includes big ticket private debt funds and, according to data provider Preqin’s 2017 Global Private Debt Report, the market is booming.

The last quarter of 2016 saw private debt fundraising reach record highs: 47 funds secured $50bn in investor commitments. 

Almost four out of five managers said they were planning to invest more in 2017 compared to 2016, and no firms indicated they would look to decrease investment levels. However, fund managers did note that valuations are a key challenge facing the industry, and that competition is fierce.

The majority are seeing more competition for deals than a year ago, and almost a third said it was harder to source deals, leading managers to review more opportunities and deploy more capital.

Nearly eight out of 10 of private debt fund managers (79 per cent) plan to invest more capital in 2017 than in the previous 12 months.

However, it is becoming increasingly difficult to find attractive investment opportunities: 31 per cent of surveyed fund managers stated that it is now harder to source deals than a year ago.

In response, 59 per cent of private debt managers are reviewing more investments than they were 12 months ago, compared with just 8 per cent that are reviewing less.

Preqin estimated that ‘dry powder’ i.e cash sitting on the side lines and waiting to be invested  has increased by about $4bn from December 2016.

Private Debt Fundraising, Q1 2014 - Q1 2017

Source: Prequin Private Debt Online

Ryan Flanders, head of private debt products at Preqin says the market is seeing strong growth.

“it is of little surprise that fund managers intend to ramp up the level of capital they deploy in the coming months, despite deal valuations and competition levels both remaining high.

“It is a clear indication that the private debt industry is in rude health, particularly in the more mature markets of Europe and North America, and fund managers are optimistic that the growth seen in recent years can continue with further industry expansion forecasted.”

The findings are based on surveys of 73 private debt fund managers conducted by Preqin in November 2016.

Sign up for our newsletters

Your daily 7am download of all things alternative finance and fintech.

Fintech and alternative finance headlines with an exclusive Editor's Note each week. Delivered Monday at midday.