Preqin: Private Debt AUM Hits Record In 2017

The private debt industry has grown AUM three-fold in the last ten years, according to new data from Preqin, hitting a record last year of $638 billion despite increased distributions to investors in recent years. 

Although the net flow of capital to investors has been negative in 2015 and 2016, Preqin said, more than $90 billion returned to investors in each year, with a further $71 billion returned in the first half of last year alone. This raises the prospect that the private debt industry distributed more than $100 billion in a calendar year for the first time. The strong performance has spurred high fundraising levels, a trend which Preqin’s research suggests will continue: 42% of investors say they intend to commit more to private debt in the year ahead than they did in the 12 months prior.

Highlights from Preqin’s 2018 Global Private Debt Report: 

• As of June 2017, private debt assets under management have grown to a record $638 billion. The industry has tripled in size since December 2007, when AUM stood at $205 billion. 
• Capital calls and distributions reached unprecedented levels in 2015 and 2016, with each year registering $100 billion in calls and over $90 billion returned to investors. 
• 2017 is on track to break those records, with the first half of the year seeing $55 billion called up from investors, and $71 billion returned to them.
• Distributions have been driven by strong performance: private debt funds returned 18.4% in the year to June 2017, and an annualized rate of 10.9% in the five years to that point. 
• Strong performance has pleased investors, with 51% holding a positive view of the asset class. Furthermore, 42% plan to commit more to private debt in 2018 than they did in 2017.
• However, recent influxes of capital have driven dry powder to record highs, and seven out of 10 fund managers report that there is more competition for transactions compared to 12 months ago.

“Given the sustained appetite among investors, and the fact that many plan to commit more fresh capital in the year ahead, indications are that the industry can maintain [the] rate of expansion in the months to come,” said Ryan Flanders, Head of Private Debt Products for Preqin. “However, there are dangers that come from growing too fast too quickly, and fund managers and investors alike are alive to concerns that the influx of capital to the asset class might make for a challenging deal making environment. 

“Dry powder available to fund managers approached a quarter of a trillion dollars as of the end of 2017, and has created pricing pressure,” Flanders added. “Both fund managers and investors cited valuations as their top concern for 2018, and if fundraising continues at its current pace, these conditions are likely to intensify.”

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 47,000 professionals in 90 nations use the company’s products.