AIMA: Global Private Credit Market Booming

Jul 29 2016 | 9:13pm ET

The global market for alternative private financing for small- and medium-sized businesses is flourishing, according to a new report published by the Alternative Credit Council and consulting firm Deloitte, with institutional capital supporting private lending activities. 

The Alternative Credit Council (ACC) is a private credit industry body affiliated with the Alternative Investment Management Association, better known as AIMA. 

The new report, titled Financing the Economy 2016, found that the private credit market has grown from $440 billion last year, to $560 billion today, with much of the growth driven by demand from European businesses. However, the U.S. still remains the largest private credit market, both in terms of overall assets under management and new assets raised.

The research is based on a survey of alternative lenders in the U.S. and U.K. representing assets under management of $670 billion, of which $170 billion is allocated to private credit strategies. Other key observations from the report:

  • 87% of global alternative lenders surveyed prior to the UK’s referendum said that the best lending opportunities are currently in the UK. This is followed by France (62%), Germany (54%), Spain (54%) and the US (50%).
  • Pension funds were cited by 57% of respondents as the biggest investor category, while a further 30% said pension funds were their second biggest source of capital. Insurance companies, endowments, foundations and sovereign wealth funds were other investor types cited as sources of capital for private debt funds.
  • Most private financing is going to businesses with pre-tax profits of $10 million or more. Most loans are greater than $5 million in size and half are in the $25 million - $100 million range. In comparison, bond market financing, a common form of non-bank finance for larger corporates, is usually in the $100 million - $300 million range.
  • Most private credit funds use little or no leverage, have low default rates and are structured in a way to prevent liquidity mismatches, bank-style runs and other financial stability problems. 
  • Fund managers said growing demand was partly driven by the flexibility, responsiveness and expertise of alternative lenders.

"As the recovery from the financial crisis continues, business innovation and demand for credit shows no signs of slowing,” said Stuart Fiertz, the chairman of the ACC and president of Cheyne Capital, in a statement. “Alternative lenders are primed and ready to continue to fill the lending gap, but this is not necessarily at the expense of the traditional lenders. We see a cooperative relationship occurring between banks and alternative asset managers."

"In the last couple of years, alternative lending has seen huge growth in Europe and is likely to accelerate over the next 24 months as a result of Brexit,” added Deloitte head of alternative capital solutions Floris Hovingh. “As trade negotiations get underway, alternative lenders could be well positioned to navigate the increased risk in the market and price this accordingly.”

The full report can be found here.

 AIMA is a global alternative investment industry association with 1,600+ corporate members in more than 50 countries. It is the co-founder of the well-known Chartered Alternative Investment Manager designation, and its manager members collectively manage more than $1.5 trillion in assets worldwide. 

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