Private debt: from the shallows to the mainstream

From small beginnings

Prior to the global financial crisis, private debt was in its infancy. The higher yielding segments of institutional credit portfolios were typically focused on allocations to more liquid instruments such as high yield bonds or syndicated loans to corporates while private debt investments were infrequent. However, much has changed since 2008. Fuelled by greater regulation of the banking sector and ever increasing attention from investors who have been forced to adapt to a near zero interest rate environment, the private debt asset class has ballooned. In 2007, Preqin estimated total assets under management were US$205 billion; nine and a half years later, and following a compound annual growth rate of 12.7%, total assets at the end of June 2017 were estimated at US$638 billion.

Behind the headline growth figures, the asset class is also evolving and diversifying. In terms of product, the core strategies remain sponsored and sponsor-less direct lending, mezzanine - financing, and distressed debt but there has been a proliferation of more niche specialty finance offerings. More recently, firms have successfully raised funds relating to activities such as royalties and litigation claims while the technology and data- based marketplace lending platforms continue to gain traction with the institutional investor community.

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