By Hank Boggio, Chief Revenue Officer of PEF Services LLC
In the past decade, the opportunities for private debt have grown significantly. When banks changed their lending criteria after the 2008 financial crisis, it created a lending vacuum that the alternative asset market has been able to neatly fill.
Today, the majority of the funding for SMEs (small and medium sized enterprises) in the US originates with the capital markets through debt or equity issuance.
Alternative lending not only addresses the needs of today’s businesses, it also aligns with the needs of today’s investors. With trends such as low interest rates, low growth, and economic uncertainty affecting performance for traditional investments, institutional investors have turned to debt funds as a means of diversifying their investments and minimizing risk.
With strong interest from both the business and investment communities, private debt is trending up. Globally, aggregate capital secured annually for debt funds has risen year over year since 2014. In 2017, this asset class saw $115 billion raised—the largest influx of capital to date1 —and more than one-third of institutional investors (37%) had investments allocated to private debt.2
The future looks even brighter for debt fund managers. More than two-thirds of investors (68%) have a positive perception of private debt,3 and 98% of institutional investors plan to increase or maintain their private debt allocations in the long term.4
For General Partners, the situation presents attractive opportunities, but it’s not without its challenges; debt funds add a layer of complexity to an asset class that is already burdened with growing administrative requirements. To ensure success, managers need to examine their back-office expertise and processes to ensure that they’re capable
of supporting this complex and administration-heavy strategy.
Opportunities abound in debt, but to take advantage of them, General Partners must be able to keep pace. Fund managers have the expertise required to originate and allocate deals, but without the necessary expertise and capacity to service a labor intensive debt fund, they can quickly run into difficulties.
To learn more about what debt fund managers need to know about back-office operations, read this white paper on Debt Fund Administration.
1 Preqin, Quarterly Update: Private Debt, 2018.
2 Preqin, Private Capital in 2017: Key Findings from the 2017 Preqin Global Alternatives Reports, 2017.
3 Preqin, Global Private Debt Report, 2017
4 Preqin, Quarterly Update: Private Debt, 2018.