According to Preqin’s Private Debt Online, 185 private debt funds held a final or interim close between January and July 2016; 112 of these are managed by North America-based fund managers, which have held 37 final closes collectively during this period, raising an aggregate $23.9bn. This accounts for more than three-quarters of total capital raised worldwide ($31.1bn). Fundraising by North America-based fund managers during this period appears relatively successful, as two-thirds of funds closed exceeded their target size, while 15% met their target and 19% closed below target. Five funds have already reached a final close in Q3 so far. Although private debt fundraising saw a substantial uptick in activity in Q2, raising $8.1bn more than the previous quarter, continued success for the asset class into Q3 will be a challenge for managers on the road due to fundraising competition in the space.
Many of the largest private debt funds closed by North America-based fund managers were raised by those with substantial experience, raising their second or even third fund in the respective investment strategies. The five largest funds raised almost half of the $23.9bn total raised by North America-based fund managers in 2016 to date, securing an aggregate $11.9bn. KKR Special Situations Fund II, Ares Capital Europe III and Avenue Europe Special Situations Fund III all target investment in Europe; Global Private Loan Fund and SJC Onshore Direct Lending Fund III both target investment in the US. Fund managers that have already held closes, as well as those that are still raising capital, will need to utilize their experience to navigate the market and be flexible in the long term as the impact of large-scale economic events on the private debt industry remain uncertain.
In the Preqin Special Report: The Impact of Brexit on Alternative Assets, many fund managers surveyed shared similar sentiments. The largest proportion (45%) of private capital fund managers believe that the UK vote to leave the European Union will have no effect on the performance of their portfolio in the next 12 months. With the results of the referendum still fresh, however, it may not be surprising that 22% of respondents remain uncertain of the implications. There were also mixed views: 13% of respondents believe that Brexit will have a positive effect, while 19% believe it will have a negative impact. Over the longer term, fund managers grow more uncertain of the potential impact of Brexit on their portfolios, although 40% believe it will have no effect.
While the consequences of the Brexit decision for the private debt industry are still unknown, fund managers will continue to be judicious in their investment activities. North America-based fund managers investing overseas will take additional care to achieve top performance for their investors.