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Private debt fund managers face intense competition to deploy record levels of dry powder

Friday, August 07, 2015
Opalesque Industry Update - Private debt fund managers are currently sitting on a record $185bn in dry powder, capital commitments from investors that are yet to be invested. Fund managers are keen to invest this capital in attractive investment opportunities, as 66% of respondents to a recent Preqin survey of over 100 private debt fund managers indicated they plan to deploy more capital over the next 12 months. Yet managers face intense competition from their peers – over half of survey respondents (51%) noted that they felt competition for investments had increased over the past 12 months, and a third claimed it was harder to find attractive opportunities in the current market.

Other Key Private Debt Industry Facts:

  • Investor Appetite: 73% of fund managers think that investor appetite has increased over the past 12 months. The largest proportion of respondents (39%) stated that public pension funds currently have the most appetite for the asset class, followed by family offices (21%).
  • Biggest Challenges: Deal flow is the primary concern of fund managers in the next 12 months, with 43% citing it as the biggest challenge. This is followed by performance, which was cited by 40% of fund managers.
  • Attracting Investors: 37% of fund managers named transparency as the most important way of differentiating themselves from peers when looking to attract investors. This is followed by 10% of respondents that named both larger GP commitments and providing greater liquidity to LPs.
  • Additional Structures for Investors: Over the next 12 months, 39% of fund managers intend to offer more co-investment opportunities to investors. Furthermore, 34% plan to offer more opportunities for separate account investments.
  • Long-Term Outlook: By 2020, 64% of fund managers expect the private debt industry to have increased its assets under management by at least 50%. In addition, 49% of managers expect there to be more firms in the industry.

Comment:

“The private debt industry has witnessed tremendous growth in recent years, and fund managers are now sitting on a record level of dry powder. Preqin has recently surveyed over 100 private debt fund managers to gauge their outlook for the coming year. This has shown that fund managers in tend to deploy a lot more capital over the next 12 months, but over half feel that competition for investment opportunities is higher t han a year ago. Furthermore, a third of respondents stated that they were finding it harder to identify attractive investm ent opportunities in the current market. Although fundraising levels are buoyant for the private debt industry, fund managers will be keen to demonstrate they can put capital to work to ensure they can conti nue to attract future commitments from investors.”

Ryan Flanders – Head of Private Debt Products, Preqin

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