Private debt investors want more risk

Editor’s ChoiceAlternative loans

Distressed debt became investors’ preferred strategy in the first three months of the year.

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According to research by Preqin, private credit investors are increasingly opting for higher-risk strategies such as special situations and distressed debt.

The number of investors opting for specialist vehicles in this high-risk part of the market increased from the first quarter of 2017 to the first quarter of 2018, Preqin found, with the largest share – 52% – of investors now showing a preference for debt. in trouble.

The proportion of investors targeting special situations funds, however, has seen the largest increase over the past year, rising from 27% of investors in the first quarter of 2017 to 37% in the first quarter of 2018.

Preqin also found that there were now 3,200 active investors in the private debt universe, an increase of 100 from the end of 2017. The appetite for private debt investments in Europe has notably seen growth over the past 12 months. The study revealed that 60% of private debt investors are looking for opportunities in Europe in the first quarter of 2018, compared to 41% in the first quarter of 2017.

Interest is still fairly concentrated, with the top 10 investors holding $71 billion in assets. This represents almost 30% of the total capital allocated to private debt. Tom Carr, head of private debt products, says an increasing number of investors are turning to private debt.

“While the total number of active investors grew by more than 100 in the last quarter alone, the universe remains dominated by a small group of the most influential institutions: the top 10 investors alone represent nearly 30% of total capital entering the asset class,” he said.

“The appeal of high-risk strategies like distressed debt and special situations is growing: a potential market correction would present these types of funds with increased opportunities to capitalize on. Perhaps that’s why we’ve seen distressed debt overtake direct lending as the most sought-after strategy, while the appetite for special situations funds has grown more than any other type of fund. .

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Carol M. Barragan