LPs boost allocation to private debt

A third of LPs surveyed in Coller Capital’s latest ‘barometer’ plan to increase their allocations to credit investments, whilst half already have or plan to have exposure to private debt funds.   

Private debt is gaining traction with LPs, so much so that half those surveyed by Coller Capital recently said they had or planned to have exposure to the asset class.

Coller Capital’s global private equity barometer surveyed 140 institutional LPs worldwide, and found that more than a third planned to increase their target allocation to credit over the next year, while just one in seven LPs planned to decrease their target allocation.

The number of private debt funds catering to demand from LPs for exposure to private debt has grown exponentially since the crisis began, Coller’s survey found, rising from 10 in 2009 to more than 100 now, with many more in the pipeline.

Stephen Ziff, a partner at Coller Capital, told Private Debt Investor’s sister publication Private Equity International: “The private debt funds are looking to fill the vacuum with the banks moving out of this space – LPs are still looking at credit and debt.”

He believes there has been significant movement in allocation strategies however over the last quarter, largely in favour of distressed debt opportunities as a result of an increase in bankruptcies predominantly in North America and Europe.

The report also found that investors are still undecided about the re-emergence of covenant-lite/ covenant-free debt for large buyouts. More than a quarter of LPs think it is “bad for the industry,” while a fifth believe it is a “good thing for PE;” with the remainder maintaining a neutral stance.