LPs: Availability of debt damaging PE

Too much debt is driving buyout firms to target inferior deals or over-leverage premium ones, according to Coller Capital’s survey of investors.

Roughly two-thirds of limited partners believe that an over-supply of debt in the North American private equity market has resulted in over-leveraging and the pursuit of inferior deals, according to a survey released by Coller Capital on Tuesday.

The findings were in stark contrast to those in Asian-Pacific and European markets, where a solid majority of LPs believe deals are being financed at adequate levels.

“Frothy credit markets are the worry for investors in North America: two thirds of LPs believe an over-supply of credit is resulting in poor deals being financed and high-quality deals being over-leveraged,” the Coller report said. 

Investor demand for yield has contributed to a spike in leveraged loan issuance over the last several years. Last year, issuance hit $82 billion, and JPMorgan recently increased its 2014 prediction for issuance of new US CLOs to $100 billion, which would make for a record year. 

41 percent of LP respondents to Coller’s Global Private Equity Barometer were based in North America. Another 45 percent were based in Europe, with the balance coming from Asia-Pacific. Research for Coller’s Barometer was undertaken in February and March of this year.