Private debt continues to witness exceptionally strong demand from institutional investors with the sector comprising 20 per cent of all new manager searches in the 12 months to end-June.
The bfinance quarterly Manager Intelligence and Market Trends report published this August reveals that while private debt deployment activity is inherently more robust than other illiquid asset classes, due to the more frequent need to recycle capital into the asset class, “investors have also noted the apparent resilience of direct lending strategies and healthy spreads helped, in part, retrenchment in bank lending”.
The report also finds that investors who entered private debt in the 2015-20 period and who are now seeking to diversify and develop these portfolios, are “exploring dedicated exposure to niches such as healthcare”.
Kathryn Saklatvala, Head of Investment Content at bfinance, said: “While private market fundraising has slowed slightly, demand for private debt is strong and appetite for real estate is increasing.”
Across the world multi-billion-dollar pension funds are opting to diversify their portfolios with allocations to private debt.
The GBP31.6 billionLondon CIV, the local authority pension pool for the London boroughs and the City of London, is due to launch a new private credit strategy in the third quarter of 2024. The latest tranche in the local authority pool’s private debt strategy will allocate 70 per cent to senior direct lending and up to 30 per cent to asset-based lending.
This April the AUD139 billion Australian pension fund UniSuper has increased its portfolio exposure to private credit.
The fund now holds approximately AUD1 billion in dry powder, which could potentially be invested in the sector.
Meanwhile this July the SOKA-BAU, a German organisation overseeing two pension funds for employees in the construction industry, has committed 5 per cent of its total portfolio to private debt.
And this summer a survey from the Pensions and Lifetime Savings Association’s Local Authority Conference found 36 per cent of Local Government Pension Scheme (LGPS) funds are planning to increase their allocations to private credit in 2025.
The boom in private markets allocations also offers new business opportunities for third party providers supporting administration and fund services.
At the start of the year the GBP56 billion local authority pension pool LGPS Central, announced a “strategic collaboration” with State Street as the provider of fund administration services for its private markets products.
State Street will initially support 13 funds managed by a combination of LGPS Central and its third-party managers in the form of fund administration, registration services, investor services and regulatory reporting services.
Speaking at the time of the appointment, Head of Investment Operations at LGPS Central, Neil Wain said: “This collaboration promises to bolster operational efficiency and further strengthen governance while providing long-term, scalable solutions for our private markets offering. In addition, State Street will provide us with a portfolio monitoring solution that will enable deeper, more sophisticated analysis using online data delivery tools, equipping us with the critical information that it needs – when it needs it – to support effective decision-making.”
