Future for private debt is bright as new records set in H1

A growing body of data shows that H1 2021 was one of the strongest periods for private debt deal activity ever seen.

Despite continued economic uncertainty during the first half of 2021, debt origination has seen unprecedented market activity as lenders seek to capitalise on opportunities created by disruption.

Just this week there have been two such examples of just how active the private debt market is nowadays. Firstly, PGIM Private Capital reported that it deployed $6.5 billion for senior debt and junior capital in the first six months of the year, claiming this was the second-most active H1 for origination in the past 10 years.

The firm said its commitment to backing the needs of companies in any economic environment, coupled with encouraging signs as the global economy starts to re-open following government measures introduced during the covid-19 pandemic, means it expects continued origination momentum through the rest of this year.

Secondly, CBRE reported a strong Q2 in its Lending Momentum Index, which tracks CBRE-originated loan closings in the US. Q2 lending was 10.8 percent above Q1 and only slightly down (1.8 percent) from its pre-pandemic closing in February 2020. Alternative lenders led non-agency commercial mortgage origination.

This recent data builds on other trends, including a record first quarter for European mid-market alternative lending, according to data from Deloitte. Anecdotally, the PDI team has repeatedly heard from fund managers that they are seeing record levels of origination activity and strong pipelines for the rest of the year.

As the threat of covid-19 begins to recede and economies open up, businesses are finding themselves in need of finance to fuel their growth or help them recover from the effects of the pandemic. With bank lending still highly constrained and private debt funds sitting on significant amounts of dry powder after several strong fundraising years, alternative lenders are well placed to capitalise on opportunities presented by economic recovery.

However, fundraising levels are still lower than they were pre-pandemic. But with funds building strong track records through the crisis and demonstrating the strength of the asset class through the credit cycle, the coming years could be some of the best yet for private debt for both capital-raising and deployment.

PDI will continue to monitor market activity and see how the industry fares as the world economy hopefully gets back to normal.