Today’s trend: the hunt for capital
The well-worn phrase “hunt for yield” – used to describe investors’ hunger for yielding asset classes like private debt – needs replacing with “hunt for capital” according to the Q4 2022 Market Review from KKR.

Not that the change of phrase is bad news for private debt: in fact, it appears to be equally as good. As the banks continue to pull back in the current market cycle, financing is becoming extremely scarce. In this environment, private lenders can demand better terms and higher discounts.

“With more flexibility and certainty of execution, we think private credit will continue to take market share from syndicated markets as it becomes more of a mainstay option for borrowers,” says the report.

KKR says its optimism around private lending is partly based on its view that the issues in the banking sector relate to a liquidity crisis rather than a credit crisis. “Banks were essentially in a position of hunting for capital that didn’t materialise quickly enough,” the report notes.

Investors’ thumbs-up
Two surveys reveal encouraging levels of investor confidence in alternative assets.

Research from asset management firm Managing Partners Group found that 97 percent of professional investors – comprising wealth managers and institutional investors – increased their allocations to alternatives over the last year. While 96 percent said they had become more positive about alternatives, 33 percent said they were much more positive.

Reasons for optimism included greater transparency in reporting (cited by 58 percent), improved track records (54 percent) and more strategies to choose from (40 percent). The leading benefits associated with alternatives included: attractive yield (58 percent), a hedge against inflation (52 percent) and strong growth in valuations (42 percent).

Meanwhile, a survey from services provider Ocorian of 130 family office investment managers found 42 percent strongly agreeing that family offices were involved in a long-term switch to alternative assets.

More than a third (34 percent) of those canvassed by Ocorian said they would increase their allocations to real estate by 50 percent or more, while 33 percent said the same of private debt. Strong performance, diversification and transparency were all cited as reasons why.

All the mid-market trends
Our recently published Mid-Market Lending 2023 report considers a range of themes relevant to private debt’s investment heartlands, including the impact of inflation, the rise of distressed debt, how the M&A market is evolving, and ways in which the landscape is changing as the banks further retrench. The report also explores the key US LPs targeting the mid-market, the emerging markets moving into the spotlight in Europe and Asia-Pacific, and whether firms are doing enough to meet the DE&I challenge.

Essentials