Private Debt News Weekly Issue #20: Market Shifts, Fundraising, and Strategic Moves
Private Debt News Weekly Issue #20: Market Shifts, Fundraising, and Strategic Moves
A Look Into Recent Private Credit Trends
The private credit landscape continues to evolve rapidly, with shifting investor sentiments, record-breaking fundraising efforts, and strategic repositioning by major players. This week, we delve into the changing dynamics of family office investments, significant fundraising activities, and the expansion of private credit into new markets and strategies.
Market Dynamics and Investor Sentiment
The private credit market is experiencing significant shifts in investor interest and market projections, presenting both challenges and opportunities for institutional investors.
Recent data from Preqin reveals a decline in fund searches for private debt among North American family offices, dropping to 11% of total searches this year from 18% last year. This trend is particularly noteworthy when compared to other alternative assets:
Private equity and venture capital: 39% of searches
Real estate: 45% of searches
Hedge funds and infrastructure: Comprising the remainder
In Europe, the trend is similar, with private credit fund searches decreasing to 8% from 10% a year ago.
Despite this shift in family office interest, the overall outlook for private credit remains robust. Bain & Co. projects private-market assets under management to reach an impressive $65 trillion by 2032, accounting for 30% of all AUM. This forecast represents a significant growth from current levels and underscores the increasing importance of private credit in institutional portfolios.
Fee revenue for private market investments is poised to double to $2 trillion over the course of a decade, according to Bain's report. This projection highlights the lucrative nature of the private credit market for asset managers and the potential for increased competition in the space.
Key Developments
1. Restructuring and Distressed Opportunities
The recent restructuring of Pluralsight provides a stark example of the risks and opportunities in the private credit market. Key details of this deal include:
A consortium of private credit lenders, led by Blue Owl Capital and Ares Management, took control of Pluralsight.
The deal wiped out $4 billion that Vista Equity Partners and its co-investors had invested in the company since acquiring it three years ago.
The restructuring involved a fresh capital injection of approximately $275 million from the lenders, with $125 million already funded.
Roughly $1.2 billion of Pluralsight's debt was converted into equity, giving the lenders a controlling 85% stake in the company.
This case highlights the potential for significant losses in private equity investments and the growing role of private credit lenders in restructuring scenarios. It also underscores the importance of thorough due diligence and risk assessment in private credit investments.
2. Secondary Market Growth
The development of a secondary market for private credit loans is gaining momentum, potentially offering increased liquidity and flexibility for investors. Key points include:
Golub Capital traded about $1 billion of private debt through the first half of the year.
The firm is among the most active participants in this space, alongside JPMorgan Chase & Co.
Other firms, including Antares Capital, are trading private loans on an ad hoc basis.
The growth of secondary trading could significantly impact the private credit market by:
Providing opportunities for investors to adjust their portfolios more dynamically
Potentially increasing price discovery and market efficiency
Offering exit options for investors facing liquidity constraints
However, it's worth noting that not all market participants view this development positively. Some argue that secondary trading could undermine the value proposition of direct lending, including the privacy and stability it traditionally offers.
3. Asset-Backed Lending Gains Traction
Preqin's Investor Outlook reveals that 58% of investors view asset-backed lending as the most promising emerging strategy over the next 12 months. This trend reflects a desire for more secure investment options within the private credit sphere.
Additional insights on asset-backed lending:
It provides added security through collateral packages, designed to mitigate economic downturns.
Collateral can include a diverse range of assets, from planes and real estate to more unconventional items like musicians' royalties or pools of litigation claims.
37% of respondents to Preqin's survey indicated that private debt secondaries show the most promise, suggesting a growing interest in liquidity options within the private credit market.
Fundraising and Expansion
Several notable fundraising efforts and expansions have been announced, indicating continued growth and evolution in the private credit space:
PGIM:
Raising a new private credit fund focused on larger direct-lending deals.
Positioning itself to compete with industry giants like Blackstone and Ares Management.
The fund is expected to hold a first close before the end of the year.
This move adds to PGIM's existing $1.3 trillion in assets under management.
BridgeInvest:
Closed its fourth private credit fund at $670 million, more than doubling the size of its previous fund.
The new fund's investing capacity is expected to reach approximately $1.2 billion with leverage.
Focuses on providing short-term, senior-secured loans tied to commercial property in the U.S.
Aims to supply loans ranging from $20 million to $150 million in sectors such as multifamily housing, industrial, hospitality, and retail.
Goldman Sachs:
Allowing select asset management clients, particularly insurance companies, to co-invest in its private credit deals.
Part of a plan to roughly double its private credit assets under management to $300 billion in the next five years.
This move marks the first offering involving this type of loan by Goldman's asset-management arm.
Janus Henderson Group:
Agreed to buy Victory Park Capital Advisors to expand in the private credit market.
Victory Park has $6 billion of assets under management, which will add to Janus Henderson's $36 billion securitized asset business.
These fundraising efforts and strategic moves highlight the growing competition and diversification within the private credit market, as well as the increasing interest from traditional asset managers in expanding their private credit offerings.
Outlook and Strategies
The private credit market is showing resilience and potential, particularly in certain segments:
The upper middle market is viewed as a preferred segment for private credit investments, according to UBS Asset Management's head of private credit, Kevin Lawi. This perspective suggests that opportunities in larger, sponsor-owned businesses with established track records may be particularly attractive.
Christian Stracke, president and global head of credit research at Pimco, warns that while global arrears remain low at about 16%, private credit is still exposed to credit stress brought on by rising rates. This underscores the importance of thorough due diligence and risk management in the current environment.
The global private credit surge is expanding into Asia, with potential for explosive growth. Recent developments include:
Goldman Sachs Group and Mubadala announced a $1 billion Asian private credit fund in February.
KKR & Co. unveiled a $1.1 billion vehicle two years ago.
In Europe, Italy is becoming a focus for global private credit firms:
Italy accounts for 4.3% of continental Europe's overall direct-lending transactions, with 140 deals completed over the past 45 quarters, according to Deloitte Analysis.
This trend is driven by small businesses, the backbone of Italy's economy, becoming more open to outside investors.
Conclusion
The private credit market continues to evolve rapidly, presenting both opportunities and challenges for institutional investors. Key takeaways include:
The market is projected to grow significantly, with private-market AUM potentially reaching $65 trillion by 2032.
Secondary market development and asset-backed lending are emerging trends that could reshape the private credit landscape.
Upper middle market and Asian markets present attractive opportunities for private credit investments.
Investors must remain vigilant about credit stress, interest rate sensitivity, and potential regulatory changes.
As the market matures, successful navigation will require a combination of thorough due diligence, strategic diversification, and a keen understanding of evolving market dynamics. Institutional investors should continue to monitor these trends closely and adapt their strategies accordingly to capitalize on the opportunities while managing the risks inherent in this fast-growing asset class.