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Investor appetite for private debt continues to grow

30 January 2018

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  • Nearly two-thirds (63%) of institutional investors expect the private debt market to grow in 2018
  • 36% of investors plan to increase their allocation to private debt
  • Direct lending is the most favoured strategy ahead of infrastructure debt, real estate debt and credit-focused special situations

Nearly two-thirds (63%) of institutional investors expect private debt investment to continue growing over 2018 and of these investors, 21% expect to see a ‘significant’ increase, according to a new report commissioned in Q4 2017 by Intertrust, a leading global provider of high-value fund, trust and corporate services.

Over a third (36%) of investors plan to increase their allocation to private debt over the next 12 months compared to just 6% who intend to reduce their exposure to the asset class.

The majority of investors (55%) cited direct lending as their most favoured strategy ahead of infrastructure debt (52%), real estate debt (45%) and credit-focused special situations (30%).

Underlining the level of returns generated by the asset class, almost a quarter (22%) of respondents said their private debt investments have exceeded expectations in the last three years, up from 15% in Intertrust’s 2016 private debt survey.

According to respondents, regulation (61%) was the biggest challenge facing the direct lending market over the coming years, followed by fee pressures (increasing from 28% in 2016 to 48% in 2017). With their ability to offer competitive rates, a resurgence of bank lending was also cited by a quarter (24%) of respondents as a key challenge facing the sector.

Commenting on the report, Paul Lawrence, Global Head of Fund Services at Intertrust, said:

“The private debt sector can certainly count on enjoying another strong year ahead. Driven by growing investor demand and macro-economic tailwinds, private debt has evolved into a sizeable, influential asset class in its own right- and as such, will continue to attract more managers.

“Even with concerns around regulation and a growing demand for reduced fees from some investors, the primary drivers behind growth in the sector remain largely in place.”