Capital Structure Forum: First-time fund launches set to fall

Rising barriers to entry in direct lending mean the grown of new debt fund managers could be at an end.

Private debt is unlikely to see a large number of new entrants in the coming year, according to a panel at Private Debt Investor’s Capital Structure Forum in London today.

A discussion analysis the latest PDI fundraising data heard that the large increase in new fund managers seen in recent years is unlikely to last.

Florian Kluge, managing director at Ardian, said: “The barriers to entry have never been higher, we’re not likely to see many new entrants to the market.

“We’ve seen the peak for new players as LPs are increasingly put off by first-time funds or managers who don’t have a strong track record.”

Timothy Atkinson, a director at Meketa, agreed and said the direct lending space in particular was becoming increasingly difficult to break into.

“There are very high barriers to the direct lending space and it’s an area where you need good backing in order to build a strong team. You also need to have the confidence of borrowers and be able to show them that you can be there for them through the credit cycle, which is much harder to show as a first-time fund.”

He said it is easier for first-time managers to operate in more niche areas such as distressed or special situations.

John Bohill, a partner at StepStone Global, added: At this stage in the credit cycle, investors won’t settle for anything less than absolute stability.”

Bohill expects LPs will increasingly look towards committing capital with very large fund managers which will drive consolidation in the industry as larger managers acquire smaller teams with a strong track record or niche.

“The big risk for those large funds is overreach, if they raise more money than they can invest well or make some bad calls it could damage their brand names,” he warned.

“I think we will see another stage when new managers can break into the market again, but not until after the next downturn,” he added.