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Changing Tides: Global Private Debt Market in 2018

31 January 2018

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Overall, 2017 has delivered another strong set of results for the private debt market and it continues to evolve at a rapid pace. Investors have an unprecedented number of funds and strategies to choose from, catering to a wide range of risk/return profiles. We launched this research in early 2018 to understand shifting trends in the private debt market from 2016.

The narrative is still relatively bullish: almost two-thirds (63%) of the professional investors surveyed by Intertrust for this report expect the private debt market to grow over the next 12 months, up from 60% last year. Of these, a fifth (21%) expect a significant increase over 2018.

Private debt has been one of the biggest success stories to emerge from the global financial crisis as opportunistic managers filled the vacuum left by the retreat of the traditional banks. According to Preqin, assets under management in private debt funds have increased fourfold over the last decade to $595 billion at the end of 2016 and it forecasts that it could grow to $2.5 trillion in another ten years.

Despite this long-term, positive view, short-term fundamentals in private credit markets may be weakening. Credit spreads are tightening, evidence that investors are prepared to climb the risk curve without a corresponding increase in return expectations. Preqin’s median net internal rate of return for direct lending funds established in 2010- 14 dipped from 10.6% for the 2010 vintage to 7.6% for 2014 funds.

Nevertheless, the drivers behind the sector’s extraordinary growth remain largely in place, fuelled by global economic and GDP growth. As this report highlights, significant opportunities in the market remain and sentiment towards certain sectors and strategies is highly favourable.