Investors want more credit despite lower returns

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A study by fund services provider Elian found that more than 40% of the 88 investors it surveyed planned to increase their allocation to credit funds globally over the next 12 months. A further 15% said they would increase their allocation to the asset class “significantly”.

Charles Le Cornu, head of private equity at Elian, said that due to the low interest rate environment, investors have been struggling to get returns from corporate and government bonds. “Investors look at private debt as another option,” he said.

While more than 70% of investors that spoke to Elian said their debt investments had met or exceeded expectations, performance for private debt has fallen in recent years. Net internal rates of returns for debt funds raised in 2013 were significantly lower than those raised in 2008, according to the most recent performance data available from Preqin’s 2016 Global Private Debt Report.

Tim Slütter, a senior portfolio manager in credit at Amsterdam-based APG Asset Management, told Private Equity News that returns in private debt had come down in recent years.

He said that APG, which invests directly into leveraged loans and also has invested €300 million with a private debt fund, has seen the performance gap narrow between leveraged loans and direct lending investments.

Competition for direct lending deals has increased in recent years. European focused direct lending funds are currently sitting on €28.1 billion of unspent capital, according to Preqin. A decade ago, this was only €300 million.

There are currently 39 European-focused direct lending funds in market aiming to collect a combined €19.1 billion.

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