Private Debt Sector Reaches Record For AuM

Tom Burroughes

17 March 2017

The private debt industry – attracting interest from investors such as family offices and private banks - has continued to grow in recent years. At the end of the first half of last year, this sector reached a record $595 billion in assets under management, according to , the research firm.

The level of capital available to fund managers, aka “dry powder” and the total value of unrealized investments increased, driving AuM up by $40 billion from the end of 2015. Moreover, this increase comes despite the fact that private debt funds distributed record levels of capital to investors in 2015, and look set to return over $100 billion in 2016 for the first time, the firm said in a report.

“The private debt asset class continues to ride the crest of a wave which has brought substantial fundraising totals over the past two years, record distributions and overwhelming investor satisfaction,” Ryan Flanders, head of private debt products, Preqin, said.

The sector has been fuelled by a search for alternative sources of lending as banks, hit by tougher capital rules since the 2008 financial crisis, have de-leveraged and cut availability of credit. With interest rates at historic lows, the search for yield has also encouraged non-bank lending in different forms. The expansion of the sector has, however, prompted some concerns about potential yield compression if or when large institutional investors enter the space (to see an article on this issue, click here.) The sector also hasn’t been tested by a severe recession.

The industry has seen a decade of successive annual increases in AUM, and consequently the asset class has quadrupled in size since 2006. Distressed debt funds account for over a third (38 per cent) of total industry assets, with direct lending (26 per cent) and mezzanine (23 per cent) funds comprising the bulk of remaining AuM.