Private credit investment set to increase

Research conducted by the Alternative Credit Council (ACC), together with global law firm Dechert, has found that private credit is expected to continue to expand across both existing strategies and into new markets.

This research, published in the duo’s fifth annual Financing the Economy paper, draws together insights from 30 industry leaders and data from 60 firms managing close to $400 billion in private credit assets and identifies key trends that will define the future of private credit.

According to the findings, 68% of survey respondents plan to increase their lending in the SME/mid-market space, despite the sense that this core market is suffering from saturation. Distressed debt, real estate and asset-backed lending are among the other more popular growth strategies.

Jiří Krόl, global head of the ACC, said: ”The expansion takes place at a time when questions about the sustainability of private credit become more prominent in the thinking of investors and policymakers. Rather than shying away from challenges presented by them, many managers have put them at the forefront of their thinking when building their businesses.”

Chris Gardner, partner for financial services at Dechert, said that whilst the “impressive progress made by the private credit industry should rightly be celebrated, we think private credit managers have only begun to scratch the surface of what is possible for the asset class”.

This asset class is a key component in institutional portfolios, particularly for those seeking income producing assets at a time of low yields in public fixed income markets and relatively high equity market valuations, he added.

Additionally, more than 80% of managers surveyed expect to raise more capital from pension funds and insurance companies.

Recently, the UK’s NEST appointed BNP Paribas Asset Management to run a portfolio of diversified private credit assets.

The European and U.S. markets continue to be the biggest source of growth for private credit, the report shows. Half of respondents expect to invest more capital in Europe, while 43% expect to invest more in the U.S. market.

The report also revealed that a third of managers are targeting future expansion in the Asia Pacific region, with almost 20% specifically targeting either India or China. Interest in the UK market, however, appears to be cooling slightly.

Gardner said there will likely be some challenges ahead and the resilience of business models will be tested over the next five years in different ways. ”The success of the asset class during this period will come from private credit managers continuing to be a valuable and trusted partner to their borrowers and investors in good and bad times,” he added.