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What Private Debt Strategies Are Investors Looking to Commit to in the Next 12 Months?

by Thomas Mulready

  • 01 Jun 2015
  • PD

According to Preqin’s fundraising data, the year 2014 saw $65bn raised for private debt funds globally amid a surge of interest in the sector, and there are signs that this interest will continue to rise throughout 2015. Preqin’s Private Debt Online shows that $21bn was raised by private debt funds in the first quarter of 2015, representing a 79% increase on the figure for Q1 2014. There was also a slight rise in the number of funds that closed, from 23 in Q1 2014 to 25 in Q1 2015.

Based on Preqin’s Q1 private debt fundraising figures, there are certainly signs that investors are increasingly looking to commit capital to debt strategies, evidenced by the strong start to 2015.  However, more importantly, what type of debt strategies will investors be looking to commit to in the next 12 months? Preqin’s Fund Searches and Mandates module currently contains over 280 investors who are considering or actively looking to invest in the asset class over the next 12 months. The chart below provides a further breakdown of the strategies in which these investors are looking to invest. The majority of investors that confirmed they are actively looking to invest in private debt include direct lending funds within their search. Interest in this strategy from investors has continued to increase, and direct lending looks set to remain attractive to investors over the next 12 months.

Preqin data also shows that mezzanine funds will feature prominently in investors’ searches over the next 12 months. The strategy continues to attract investor capital and is witnessing a surge in interest, as highlighted by the fundraising data for 2015 YTD. So far this year, 16 mezzanine funds have closed having raised $12.6bn – 42% higher than the amount of capital raised in 2014.

The chart also shows that distressed debt will be an attractive strategy among investors over the next 12 months, with many potentially looking to take advantage of opportunities arising from the fall in the energy market. The displacement in the oil industry has led to some of the largest fund managers raising distressed debt funds which will focus on or include investments in the energy sector. These include KKR, Oaktree Capital Management and Apollo Global Management, which has closed its Energy Opportunity Fund this year with just over $1bn in capital, focusing on struggling companies within the oil & gas industry.

A strong first quarter in the fundraising market has certainly provided early signals that private debt is a growing area of interest for investors in 2015. Along with the increasing number of debt funds in the market, there are certainly signs that the asset class will strengthen in 2015, with the right strategy selection remaining key in order to take advantage of the best opportunities in the market.

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