As more money is pumped into private debt funds, managers are scrambling to deploy the cash and differentiate themselves in an increasingly competitive market, research from Preqin has shown.
Funds held a record $185 billion in uninvested capital as of July 31, the data firm said, following aggregate fundraising of $46 billion so far in this year. In addition, Preqin reported that 221 funds were currently seeking capital from investors totalling a further $126 billion.
A third of surveyed managers said sourcing attractive investment opportunities would be more difficult—or significantly more difficult—over the next 12 months. However, nearly half—47%—stated that they aimed to put more capital to work in the next 12 months than in the previous 12 months.
“Although fundraising levels are buoyant for the private debt industry, fund managers will be keen to demonstrate they can put capital to work to ensure they can continue to attract future commitments from investors,” said Ryan Flanders, head of private debt products at Preqin.
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In an effort to stand out from the growing number of
competitors, more than a third of managers said they planned to offer large
investors more opportunities to co-invest, rather than buy into pooled funds.
Only 1% anticipated offering fewer such opportunities. In addition, 34%
said they planned to offer more separate accounts to investors.
“While there may not be huge growth in the prominence of alternative structures in the coming year, over the longer term, as investors become increasingly confident and sophisticated, alternative methods of accessing the asset class are likely to be utilized more,” Preqin wrote in its report.
Fund managers also acknowledged improved transparency as an important way in which they can stand out from the crowd: 37% cited this as the most important differentiator.
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Read Preqin’s “Private Debt Fund Manager Outlook” in full.
Related: Private Debt Supply Lines Swelling, Says Moody’s & A How-To Guide to Private Debt