After a record year last year, the private debt industry has seen the first three months of 2018 slow.
Every quarter of 2017 saw total capital raising by large ticket private debt funds exceed $20bn. This year however, according to Preqin, the first quarter of 2018 has not seen that momentum continue as 19 funds secured a combined $14bn in the first three months of the year.
In Q1 2017 36 funds raised $25bn meaning the market data suggest a slowing of funding for this part of the market. In fact the three months to end of March is the lowest capital total raised seen since Q3 2016 during which the Brexit vote in the UK may delayed investment, particularly in European and UK markets . Europe-focused funds in 2018 were primarily responsible for the latest slowdown, as just five vehicles secured $3.5bn for the quarter, Preqin says.
Direct lending funds in particular saw a decrease in fundraising from their record Q4 levels – just seven vehicles reached a final close in Q1, raising a total of $5.1bn. This compares to 18 direct lending funds that secured $12bn in Q1 of the previous year.
At the start of April, there are 348 private debt funds in market, seeking $168bn from investors. Direct lending funds account for almost half of that, with 170 funds targeting $74bn.
Tom Carr Head of Private Debt Products says following a landmark fundraising year in 2017, the opening quarter of 2018 represents a slowdown from the previously “frenetic pace” of fundraising but it may not represent a permanent shift to lower demand for private debt assets.
“This may simply be that the industry is pausing for breath before beginning another fundraising cycle. Dry powder available to fund managers remains high, and it may be that investors are waiting for firms to begin putting capital to work before making further commitments,” he said.
“But the outlook for the rest of 2018 remains positive: the conditions which prompted such strong fundraising in 2017 are still in place, and funds in market have already raised significant sums through interim closes. If they hold a final close this year, we could see fundraising totals rise rapidly,” he added.
Carr adds that the lower levels of funding are driven in large part by a shift in the pace of direct lending fundraising: “having seen 22 funds secure $26bn the previous quarter, Q1 2018 does not begin to approach this level,” he said.