LONDON, 13 December 2023 – Today Preqin, the global leader in alternative assets data, tools, and insights, published the Preqin Global Report 2024: Private Debt. The report shows that while private debt fundraising in 2023 will look relatively flat against 2022, it is still strong when compared to other private capital asset classes.  

In a difficult year, fundraising remains robust for private debt  

In a year marked by consistent economic uncertainty – inflation fears and rapidly rising interest rates weighing heavily on investors’ minds – private debt fundraising held up and, consequently, fund managers are increasingly targeting investment into this space. There is now a record number of private debt funds in market, growing by 19% from 2022 to 1,080 at the end of Q3 2023, and a more than 40% increase in the capital being targeted by new funds. The ratio of capital targeted in 2023 to capital raised over the prior year has spiked to an all-time high of 3.0x, suggesting that fund managers are optimistic about the prospects for private debt.  

Looking forward, Preqin analysts expect the fundraising environment to improve, as the rate situation becomes more embedded in markets, with fund managers and investors alike adjusting to higher interest rates. Adding to this, Preqin forecasts that private debt AUM will grow at a compound annual growth rate (CAGR) of 11% from 2022 to 2028, reaching an all-time high of $2.8tn – almost doubling the 2022 figure of $1.5tn. 

Experienced managers continue to win over investors  

Preqin data shows that private debt investors are allocating capital to fewer, larger funds than previously. For year-to-date to Q3, the top 10 funds took over half of funds raised. According to Preqin analysts, this suggests that investors value the economies of scale that accrue to larger funds. Investors also are looking at experienced managers that have a track record to point to. This manifests in the average fund size, which, for year-to-date to Q3, for an experienced manager is $1.4bn, compared to just $167mn for a first-time manager.  

RJ Joshua, VP, Head of Private Equity, Research Insights, at Preqin says, “2023 was a year where private debt was under the spotlight, and the asset class’s results were broadly positive. Fundraising held up in difficult conditions, as LPs remained supportive of the asset class in the face of uncertain economic conditions. Our results suggest that GPs are also optimistic about growth in investor demand for 2024.”  

Additional key findings from the Preqin Global Report 2024: Private Debt include:   

• Distressed debt: Preqin analysts believe distressed debt could benefit from a weaker macroeconomic environment, as it may create investment opportunities for these funds. In the latest Preqin investor and fund manager surveys (which surveyed 395 respondents) cited in the report, results show strong growth in the interest for the strategy with 67% of investors surveyed had a favorable view of the opportunities for distressed debt.  

• Investor sentiment: Preqin analysts had expected mezzanine strategies to be popular with investors in 2023, and this has proved the case. The team believes mezzanine funds’ success is in part due to investor appetite for an asset that is safer than a traditional equity fund, but which also maintains higher returns than senior debt. 

• Business development corporations (BDCs) are an established route for funds to attract capital from smaller investors in the US. They offer greater liquidity for LPs, while allowing GPs to tap into a larger pool of capital. At present, traditional LP-GP private debt structures still dwarf BDCs, making up 91% of private debt assets.  

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