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Laxman Pai, Opalesque Asia: Direct lending funds targeting Europe stand to benefit from tighter lending criteria at eurozone banks, said a report by Preqin.
As per the report, over the past eight years, direct lending has emerged as the dominant strategy of Europe-focused private debt, with assets under management (AUM) surging from $9.0bn as of December 2012 to $138bn as of June 2020.
Growth in AUM at direct lending funds outstripped that of distressed debt funds (up from $13bn to $53bn) and special situations (up from $14bn to $35bn) in the same period, it said.
Direct lending funds provided more stable returns than other private debt strategies, said Preqin.
Funds of vintages 2011-2017 have maintained median net IRRs between 7.6% and 8.8%, which are relatively high compared to other fixed-income markets, but also steady. The 5.0% standard deviation of net IRR is the lowest of any private debt strategy.
Last year European direct lending funds struggled to deploy capital, with the amount of available dry powder increasing 30%, from $44bn at the end of 2019 to $63bn at the end of 2020. This was in marked contrast to both special situations, where dry powder fell from $13bn to $11bn, and distressed debt, which slipped from $16bn to $14bn.
"The liquidity pumped into the system as COVID-19 spread made private debt, already a relatively expensive form of credit for companies, less competitive. Additionally, many firms were able to avail themselves of support...................... To view our full article Click here
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