The Opportunity in Private Debt

This year, significant players in the field of credit management have successfully secured substantial funds, contributing to a strong overall rise in fundraising for private debt. According to data from PitchBook, the global sum raised by private debt funds in 2023 (as of July 28) has reached an impressive amount at USD122 billion. This marks a roughly 10% increase when compared to the same period in 2022. However, it’s worth noting that the number of new funds that have been successfully closed so far this year has decreased to 81, a drop from the 112 funds that were closed during the same period last year.

What’s interesting to observe is that the three largest funding endeavours concluded in 2023 have all been directed towards mezzanine or special situations strategies. This hints at a growing interest in more daring investment opportunities that come with higher potential returns.

In contrast to the difficulties faced by other investment approaches in the private market, private debt has shown resilience in attracting funds. This is particularly notable because it highlights the attractiveness of investments tied to variable interest rates as these rates start to increase. The lead analyst at PitchBook pointed out that investors are likely to stick with this strategy as long as they continue to see consistent and robust distribution rates, especially when those rates remain in the double digits.

The fundraising landscape in 2023 has been marked by the dominance of substantial funds managed by well-established experts. Impressively, the 20 largest closed funds managed to amass a total of USD87.3 billion in funds. This staggering sum constitutes almost 72% of the total global private debt fundraising.

Here’s the list of the top 20 largest private debt funds to date:

During the second quarter of the year, HPS Investment Partners managed to secure over USD19 billion through two funds focused on mezzanine debt and direct lending. This achievement propelled them to the top of the fundraising list. Coming in second place, Goldman Sachs Asset Management successfully concluded a mezzanine fund round, raising an impressive USD11.7 billion in January.

The Opportunity

A reduction in the amount of money banks are lending has opened up lucrative possibilities for private debt managers. These managers are now gathering billions of dollars to meet this demand and establish their positions in the world of credit.

When there’s more demand for lending than supply, the benefits are on the managers of private debt funds. This advantageous position enables them to negotiate for more stringent lending conditions and higher interest rates. In this scenario, those providing loans have a significant advantage. If the pace of fundraising continues, the total capital accumulated by global private debt funds is projected to surpass USD200 billion for the fourth consecutive year.

Family Office Favouring Private Debt too

Family offices are showing a strong inclination towards certain investment strategies amidst the slow recovery of alternative investments. They are increasingly favouring approaches that involve fixed-income assets like treasuries, along with private debt and secondary investments in the realm of private equity. Family offices believe that these strategies offer the potential to deliver more appealing and well-balanced returns in comparison to traditional private equity and venture capital investments, especially given the prevailing macro market conditions.

The Chief Investment Officer at Landmark Family Office (LFO), mentioned that they are currently not actively pursuing many private equity deals. Instead, they are inclined to wait until 2024, expecting that more investment opportunities will emerge by then. This strategic decision reflects a forward-looking approach to capitalize on potential future opportunities.