Preqin’s Private Debt Online database currently tracks 225 institutional private wealth investors, comprising single-family offices, multi-family offices and wealth managers. These private wealth firms have a median allocation of $45mn to the asset class. The chart below outlines the preferred private debt strategies of these investors.
Distressed debt is currently the most preferred fund type among this LP community, with 58% of private wealth investors indicating a preference for the strategy. Despite direct lending being cited by 62% of respondents as the most attractive private debt fund type in Preqin’s recent survey* of over 50 LPs active in the asset class, the chart shows direct lending as the second most prevalent fund type that private wealth investors seek to make commitments to for their private debt investment portfolio.
With the current fundraising market showing that direct lending vehicles make up the largest number of funds seeking commitments (47%), it is no surprise that strong LP appetite for this strategy is reflected in the data. Fifty-two percent of private wealth investors are currently showing a preference for direct lending funds, hoping to yield strong risk-adjusted returns.
Although the 2015 Preqin Global Private Debt Report revealed that mezzanine fundraising saw a drop in both total capital raised and number of funds closed in 2014, mezzanine funds still remain highly regarded by investors in the private wealth universe, with 49% stating a preference for this fund type. The least preferred fund type is infrastructure debt, which is currently sought after by just 5% of institutional investors in the private debt space.
Institutional investors, including private wealth LPs, are now faced with a greater choice of investment strategies to add to their portfolios, spreading risk and increasing levels of diversification. As the private debt asset class continues to grow, with Q1 2015 fundraising eclipsing that of the previous year, Preqin will actively track the increasing appetite for private debt and the various investment strategies preferred by LPs around the world.
*You can find the full survey results in the Preqin Investor Outlook: Alternative Assets, H1 2015.