Private investors doubt their ability to handle defaults in post-pandemic slowdown
– New study finds 87% of capital market investors pursue direct lending strategy
– However, almost half (47%) are not confident in their ability to handle claim collections
LONDON, May 20, 2021 / PRNewswire / – An overwhelming majority (87%) of capital market investors pursue direct lending strategies, although almost half (47%) are unconfident in their ability to handle loss recoveries , which could have serious consequences if business failures increase due to a pandemic. government assistance schemes are abolished.
According to a Capital Markets report, titled Navigating CovExit: Searching for Value in Debt Markets, commissioned by Ocorian1, a global leader in capital markets, fund administration, and corporate and trust services1, the majority (57%) of capital markets investors have an existing direct lending strategy that they are looking to expand, and 30% have a strategy that they are executing.
With $ 207 billion having been deployed by 327 direct lending funds around the world over the past 10 years2, the study highlights a lack of investor confidence that their direct lending capacity will be sufficient to weather the storm. They expressed the least confidence in processing loss recoveries (47%), assessing risk (53%), filing reports (54%) and monitoring commitments (57%).
Ocorian commissioned an independent study of 100 capital market decision makers working in investment banks and private equity firms in Europe, North America, Africa and Asia assess their operational readiness when planning their post-coronavirus pandemic investment strategies.
Respondents from younger companies under 10 were the least confident about their loss recovery abilities when it came to direct loans, with only 41% expressing confidence. Regionally, levels of confidence in robust disaster recovery capabilities were lowest among European respondents (28%), significantly behind North American (40%), African (48%) and Asian (72%) respondents. %).
Despite their concerns, some 92% of respondents expect insolvencies and corporate restructurings to present them with opportunities in the next 12 months, with 22% of whom believe the opportunities will be important.
Alan booth, Global Head of Capital Markets at Ocorian said: âRelatively few defaults to date suggest that private debt investments have been resilient, but government support and low cost of financing can mask a varying degree of trauma in the market. As this support is reduced and interest rates rise, we can expect to see difficulties and even opportunities in some sectors. The reaction of private debt managers will be varied and we are likely to see the hawks be more numerous than the doves.
âDespite operational concerns and weakening near-term fundamentals in private credit markets, investors are increasingly drawn to the sector in anticipation of debt restructuring as well as pandemic-related M&A activity. Real estate to direct lending may have difficulty adapting their infrastructure to meet their need for rapid execution.
âIt is essential that managers have sufficiently robust and scalable operational, risk and compliance processes in place, either internally or through an outsourced arrangement to avoid unnecessary delays and risks to themselves and their LPs. “
To learn more, join the June 9 webinar or to download the full report Navigating CovExit: Searching for Value in Debt Markets, click here.
Notes to Editors
1 The research was conducted among a panel of 100 senior capital markets professionals in March 2021. All respondents were involved in the decision-making processes of the company and were evenly distributed in Europe, North America, Africa and Asia, either from medium or large capitalization investment banks, or from private equity firms. Respondents worked in companies with balance sheets ranging from around $ 50 billion to end $ 1 billion.
2 Preqin data released in S&P Market Intelligence 2021 Direct Lending Outlook on the 18the december 2020
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