Preqin: Private Debt Becoming ‘Fixture’ in Portfolios

Investors plan to up allocations to private debt, citing high satisfaction with the asset class’ performance, according to Preqin’s latest survey.

Of more than 160 institutional investors surveyed, 67% indicated they would increase their commitments to private debt over the long term. The majority of survey respondents said they viewed the asset class positively; just 9% held a negative view.

“Having once been considered a niche part of the alternative assets market, the private debt industry is continuing to cement its position as a fixture in many investors’ portfolios,” said Ryan Flanders, head of private debt products at Preqin.

Private debt investments have largely met or exceeded investor expectations, the survey found, with 84% of investors reporting satisfaction. Over a quarter (27%) said their confidence in private debt’s ability to achieve portfolio objectives had increased over the last year.

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“The recent performance of their private debt investments has met or exceeded the expectations of most investors, and as a result, the general perception of the asset class is currently very positive,” Flanders continued.

Although the majority of respondents still invested in the asset class through their private equity allocations, the number of investors with independent private debt allocations is slowly growing. According to Preqin, 12% of investors had separate buckets for the asset class, compared to 11% six months ago.

Nearly two-fifths (38%) remained under their target allocations, and almost half (46%) planned to commit more capital to the asset class over the next year.

When making those commitments, investors said fund strategy was the most important factor to consider, followed by track record length and past performance.

Of private debt strategies, respondents favored direct lending, mezzanine, and distressed debt. They primarily targeted investments in North America and Europe.

A hedge fund manager and former CEO of Goldman Sachs Asset Management has been charged with insider trading by the US Securities and Exchange Commission (SEC).

Leon Cooperman and Omega Advisors, the firm he founded in 1995, were accused of generating “substantial illicit profits” through trading shares of Atlas Pipeline Partners in 2010. Cooperman was chairman and CEO of Goldman Sachs Asset Management between 1989 and 1991.

Cooperman used his position as a “significant” shareholder—owning roughly 9%, or $46 million, of the company’s shares—to get information from an executive about the sale of a natural gas processing facility, the SEC said in its legal complaint.

“Cooperman and Omega Advisors allegedly accumulated [Atlas] securities despite explicitly agreeing not to use the material nonpublic information for trading purposes,” the regulator added in a press release. When the sale was announced publicly, “its stock price jumped more than 31%.”

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Omega Advisors was issued a subpoena relating to its trading in Atlas stock 17 months later, the SEC said. However, the regulator alleged that Cooperman subsequently attempted to “fabricate a story” with the Atlas executive. “The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement,” the SEC said.

On top of the Atlas allegations, the SEC has charged Cooperman with “failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned.” The regulator alleged he had broken securities laws “more than 40 times in this regard.”

The SEC is demanding repayment of “ill-gotten gains plus interest [and] penalties,” as well as permanent injunctions against Cooperman and Omega.

The US regulator’s clampdown on insider trading in recent years has resulted in a number of high-profile actions, including against the former CIO of the Wyoming Retirement System, a number of former portfolio managers from Steven Cohen’s SAC Capital, and a hedge fund manager at Visium Asset Management.