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Alternative Market Briefing

Institutional investors struggling to find value in crowded private debt market

Tuesday, August 14, 2018

Bailey McCann, Opalesque New York:

It has become more challenging for institutional asset owners to find compelling opportunities in private debt, according to new research from Willis Towers Watson. The research examines the key principles that investors should follow in order to invest most effectively in the sector.

"As the market widens, its complexities become more difficult to understand, with the majority of institutional investors continuing to concentrate their activities on mid-market corporate direct lending. The result is large capital flows into a squeezed portion of the market, creating downward pressure on returns and upward pressure on risk," said Chris Redmond, global head of Credit & Diversifying Strategies at Willis Towers Watson.

Willis Towers Watson believes that investors are missing out on opportunities in less competitive parts of the market that could offer greater return outcomes. Much of this trend is driven by private debt managers themselves. The report shows that managers tend to prefer ideas that are easy to sell and are quickly scalable, which often results in many funds crowding into the same part of the market.

The research further shows that regulation continues to inhibit historically dominant lenders in several sectors, with the most attractive returns most likely to be found where the impact of policy is at its most extreme. Opalesque recently reported on the lunch of a fund going after these opportunities - ......................

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