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How Optimistic Are Investment Consultants About the Private Debt Asset Class? – February 2015

by Joshua Snow

  • 24 Feb 2015
  • PD

Preqin’s Private Debt Online database tracks over 100 investment consultants offering consultancy services in private debt. This is subject to deeper analysis in the February 2015 Preqin Special Report: Investment Consultants in Private Debt, where 30 investment consultants were surveyed and gave insight into their activities within the private debt space and their opinions on the future of the asset class.

The long-term prospect of opportunities within the private debt sphere is one which continues to divide; some doubt its ability to outlive the short term, insisting the growth of the asset class has been driven by market opportunity in light of bank deleveraging; while others are more optimistic. Among the responding investment consultants, opinions were more clearly defined. As shown in the above chart, a substantial 87% of respondents stated they expected the asset class to continue to grow in the long term, compared to only 7% that thought it more likely a short-term phenomenon. The remaining 7% were unsure about their long-term outlook on the private debt asset class.

Of the investment consultants that viewed the growth of private debt as likely to continue in the long term, many noted that regulatory and structural changes to the banking sector have led companies to seek alternative sources of funding. Investment consultants that believe the growth of private debt is unlikely to be sustained in the future generally stated that they expect banks will eventually increase their level of lending, eventually overwhelming those high-cost funds that have been created to temporarily fill the void.

The general consensus, however, seems to be positive; with portfolios struggling to produce attractive returns, clients of investment consultants appear to be increasingly turning to private debt in search of higher returns. Investors such as pension funds, which typically approach investments via a liability matching model, are able to invest for the long term and take advantage of the illiquidity premium provided by the asset class.

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