Most investors think private debt will perform better in the coming year and just over half aim to increase their allocation to the burgeoning asset class, according to a survey by data provider Preqin.
Nine out of 10 investors believe the $1.5 trillion private debt market has met or exceeded their expectations over the past year, according to a report by Preqin on Tuesday. Some 45% expect to boost their allocation in the next year, while that figure rises to 51% when investors were asked about their plans for the long-term.
“This was the highest response from investors from any asset class and private debt was also the only asset class for which most respondents stated they intend to increase long term allocations,” Preqin said, after a June survey of 178 institutional investors with $10 trillion of assets under management.
Private lenders have benefited from a rising-rate environment, as their portfolios of loans are largely structured on a floating rate basis. This means that when base rates — such as SOFR and Euribor — rise, so too do their interest payments. They have also benefited from fragility in broader public credit markets, as banks become more cautious about underwriting new deals for fear of not being able to sell the debt.
However, some companies are not able to afford the higher interest burdens and lenders are increasingly taking the keys of businesses that fall foul of their loan agreements. This could impact returns to investors, if the credit funds can’t bring the company back to good health.
This article was provided by Bloomberg News.