Regulation tops investor concerns about private debt

Investors are concerned by regulation, but that has not stopped them from taking a bullish attitude towards the asset class.

Regulation is the biggest challenge that private debt funds will face in the coming years, according to professional investors surveyed by Intertrust.

In a report on the development of private debt as an asset class, advisory firm Intertrust found that 61 percent of investors believe regulation will be a major challenge in the near future. Fee pressure was the next most important issue, highlighted by 48 percent of those surveyed.

Fundraising, delivering strong performance and conflicts of interest among lenders which also provide equity were also high on the agenda, with each highlighted by 30 percent of firms surveyed.

While private debt has grown strongly in the US and UK since the financial crisis, where there are relatively few restrictions to non-bank lending activity, other markets such as Germany have more restrictive regulations on non-bank lending which have curtailed the development of private debt activity.

But there is little to suggest that regulations on private debt provision are set to tighten further and last year several general partners told PDI they do not expect regulation to hamper the industry any time soon.

The survey also found that 63 percent of investors expect the private debt market to grow in the next 12 months. This suggests 2018 could see new highs for fundraising after 2017’s record $180 billion haul.

Intertrust’s research found 42 percent of investors believe the private debt market will grow slightly, while 21 percent expect it to grow significantly. Of the remainder, 30 percent believe it will stay the same while just 7 percent believe the market will shrink.

The infrastructure sector is expected to attract the most private debt finance, with 55 percent of investors saying it will see the highest levels of investment, while 48 percent highlighted commercial real estate. Technology and healthcare are also expected to do well, and were identified as major sectors for investment by 36 percent of respondents each.