Private Debt Loses Its ‘Shine’

Managers face a “long and difficult road to raise capital” unless fundraising picks up from last year’s drop, Preqin predicts.

Illustration by II

Illustration by II

The fundraising boom for private debt has slowed, with new capital commitments at their lowest level since 2015.

Private debt funds attracted $107 billion from investors last year, down 11 percent from 2018, according to Preqin data released Thursday. The global volume raised in 2019 is about 19 percent below the record level set in2017.

The “shine has worn off” of the industry’s decade-long expansion story, said Tom Carr, head of private debt at Preqin, in a statement Thursday. Still, he said that “long-term appetite among investors remains robust, and fund managers certainly believe that there is significant potential yet to be tapped.”

Alternative asset managers are still positioning themselves to benefit from private debt’s emergence as a standalone asset class in the portfolios of institutional investors. For example, JPMorgan Chase & Co.’s asset management unit recently created the position of head of private credit to helps its alternatives group drive a major expansion in that area.

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Private debt, which includes funds that lend directly to mid-sized companies, had a total $261 billion to invest at the end of last year. That’s the lowest level of dry powder since 2017, when an unprecedented $132 billion surged into the industry.

This slowdown has hardly dissuaded managers, who will point investors to the drop in dry powder as evidence they are still finding investment opportunities, Carr suggested.

But the market is more crowded than ever. An overabundance of managers seeking capital could make it difficult for many of them to reach their targets, according to Preqin.

At the start of 2020, a total 436 funds were seeking $192 billion, up from 399 funds targeting a combined $168 billion at the beginning of last year.

“Unless fundraising rebounds significantly in 2020, it seems likely that many of these funds will face a long and difficult road to raise capital,” Preqin said.