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Alternative Market Briefing

Investors take a closer look at private equity exposures

Tuesday, January 02, 2024

Will 2024 be another year of solid private credit fundraising? It might be. Institutional investors are looking for ways to diversify their portfolios and private credit is proving to be a source of consistent returns.

According to the State Street Private Equity Index, which collects data from about 3,900 funds with $4.8 trillion in capital commitments, private debt funds returned 2.61% to their investors in the second quarter of 2023, compared to buyout funds which returned 2.29%.

Private credit funds also typically have shorter lock ups and can help institutional investors manage ongoing capital needs in part because it is easier to get money out. Data from Preqin suggests this flexibility is helping to grow the size of the private credit market considerably. Preqin forecasts it growing from its current size of $1.6 trillion to $2.8 trillion over the near term.

Still, some are quick to point out that private credit has yet to be truly tested through a recession or slowing economy. Analysts suggest that 2024 could prove to be a bit of a test if business conditions soften or decline significantly next year. Analysts note that if private credit fund managers have limited covenants or haven't been disciplined in their credit selection, some funds may underperform.

A recent allocator survey from PitchBook suggests that some investors are taking a closer look at their private credit exposures to make sure they are well positioned if the economy slows in 202......................

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