Fewer funds raising more capital: a familiar story that continues to ring true in private debt. In the first six months of 2017 only 67 funds held a final close, raising $61.6 billion – the second highest amount of capital closed in H1 since 2010. The number of final closes in H1 2017 is significantly smaller than seen in the first halves of 2016, 2015 and 2014 – 81, 117 and 86 respectively.
Analysis of private debt fundraising highlights three key trends. First, region-agnostic fundraising has lost momentum – 36 percent of capital raised through final closes since 2014 had this remit down from 47 percent between 2010 and 2013. Second, fund managers have consistently beaten fundraising expectations since 2010 – but is this due to firms setting more realistic targets or are they meeting increasing demand for private debt opportunities among investors? Third, and perhaps related, funds are taking longer to reach a final close – on average, this took 17 months in the first half of 2017, up from 12 months for funds closed in 2013.
Of the $61.6 billion raised in the first half of this year, less than 1 percent was focused on emerging markets outside of Europe – highlighting the expected dominance of more mature, developed regions. With investment initiatives being launched in Asia-Pacific by blue chip investors – such as Fortress Investment Group – funds focused in the region may yet increase considerably in the coming years.
As competition between fund managers increases, more private debt funds are on the road than ever before – there were 528 funds in market in H1 2017, 53 more than at the same time in 2016, and 125 more than in 2015. Apollo Investment Fund IX is the largest of these, seeking $23.5 billion from institutional investors. It will invest through both distressed debt and distressed equity instruments.
In this report, James Del Gaudio, private debt manager at Pennsylvania Public School Employees' Retirement System, offers his views on the private debt market. Diversification of the pension plan’s investment portfolio and the effects of competition on pricing are two of the topics discussed. Del Gaudio also offer his views as to where the best private debt opportunities lie.