After slowing down in 2020 during the heights of the pandemic, private debt fundraising has begun its recovery in 2021. PDI’s most recent quarterly fundraising report shows $149.6 billion of capital was raised during the first nine months of 2021, well ahead of the $125.6 billion seen at the same point in 2020. Assuming the pace of fundraising is maintained in the fourth quarter of the year, then 2021 is expected to comfortably beat the $176.4 billion raised in the whole of 2020.

But the year also saw a rapid acceleration of an existing trend, with fewer but much larger funds being raised. The average size of funds, according to the PDI Fundraising Report, reached almost $1 billion by the end of September 2021, well ahead of the average fund size of $668 million seen in 2020, itself a record at the time.

“Being unable to travel due to covid restrictions has been beneficial for existing managers,” says Park Square managing partner Robin Doumar.

Limited partners have long preferred to meet their asset managers in person across the boardroom table as part of their due diligence process. However, the covid pandemic has made it challenging or impossible for such meetings to take place. The end result is that during the height of the pandemic, many LPs were only making commitments to managers with which they had an established relationship, making it more difficult for new or up and coming fund managers to get a foothold in the market.

However, Doumar believes this effect may now start to subside as both investors and managers get used to remote working methods such as virtual meeting rooms.

“Investors have become more comfortable working remotely. Yes, the big guys are getting bigger but the huge growth in the market is benefitting all managers,” he adds.

It remains to be seen whether renewed demand for private debt as the economy begins to recover will once again lead to the formation of new managers in the private debt space or whether the largest managers will continue to consolidate their position.

Another trend seen during 2021 was a heavy bias in fundraising activity towards North America. Data from PDI’s latest fundraising report shows that almost $81 billion of capital was raised for debt investment in North America in the first nine months of 2021. This is well ahead of the $31.5 billion raised for Europe. While North America has historically been a larger destination for private debt, Europe had in recent years begun to catch up.

One factor likely to be causing this is the much stricter covid-19 control measures imposed in most European countries versus the US. With fewer restrictions on travel and reduced economic effects of shutdowns, American managers have been able to raise funds more easily than their European counterparts.

Fundraising in the Asia Pacific remains low compared to more developed western markets at just $5.9 billion but has continued to grow through 2021 and is already higher than the $5.4 billion raised in the whole of 2020.

Looking towards the future, the value of capital being sought in market is high in developed markets, with $133.2 billion in North America and $106.5 billion in Europe. Fund managers in Europe will be hopeful for more buoyant fundraising activity during 2022.

While the industry has been sitting on substantial piles of dry powder in recent years, following record levels of fundraising in 2017, with deal-flow picking up significantly during this year and expected to continue into 2022, firms will need to raise new vehicles to be able to continue to access all the opportunities the next round of economic growth will bring.

With other fixed income markets continuing to see lackluster performance, including corporate bonds and the syndicated market, limited partners may be looking to further expand their private debt commitments to achieve higher yields, which will be particularly necessary to guard against the rising threat of inflation.