When the covid-19 pandemic first started spreading its sinister tentacles around the world early last year, it was widely assumed that it would herald a period of investor introspection in which ambitious allocation plans would be put on hold.

This assumption was reinforced when travel plans had to be shelved and limited partners were forced to conduct due diligence remotely. This was an unsatisfactory situation for many investors who had long insisted that looking managers in the eye was an essential part of building confidence prior to writing a cheque.

However, whatever challenges are faced, the world doesn’t stop spinning. This, the third iteration of our Global Investor 30 ranking, shows vastly increased quantities of capital finding their way into private debt. There are many reasons – including yield, return, diversification, low correlation and downside protection – why private debt commitments are made. It’s clear that investors are not prepared to stop making them, even in the face of adverse circumstances.

Five observations from the Global Investor 30

There are no signs yet of the pandemic having had any negative effect on investor enthusiasm for private debt. We look at five takeaways from our latest ranking

Appetite through the roof

Our latest ranking of private debt’s 30 largest investors shows no sign of any let-up in appetite for the asset class. The latest ranking takes us up to the end of last year – taking in the earliest waves of the pandemic – and it shows the total private debt allocations of our top 30 reaching $452.6 billion.

This is a remarkable figure, surpassing the top 30 total recorded a year prior ($303.3 billion) by around 50 percent. Perhaps an even more arresting statistic is that the top 10 allocations this time round, totalling $302.0 billion, are just a whisker short of the previous year’s top 30.

There had been speculation that investors would be more tentative in committing to allocations in the face of a crisis, and the pandemic has certainly presented challenges with investors forced for a time to conduct due diligence on fund managers on a solely remote basis. But while this may eventually become evident in the numbers, there was no sign of it at the turn of the year.

Emergence of two giants

Just two organisations, both based in the US, account for a combined total of almost $162 billion in allocations – equal to almost 36 percent of the top 30 total. At number one in the rankings is TIAA, the New York-based financial services organisation. On p. 14-15, you will find an interview with Emilia Wiener, TIAA’s head of fixed income, in which she explains the firm’s approach to private debt.

At number two on the list is Metropolitan Life Insurance Company. The insurance firm, also based in New York, has surged up the ranking as more information has become available to us regarding the extent of its private debt activities. At more than $72 billion, MetLife’s allocation is not too far behind TIAA’s figure of almost $90 billion.

The difference between the top two and the rest is stark, with Canada’s ManuLife Investment Management in third place with less than $32 billion.

North American capital dominates

Investors around the world are increasingly persuaded by the benefits of the asset class, but North America is still very much the home of private debt allocations. Between them, the two largest markets for LP allocations – the US and Canada – account for $312.4 billion in our latest ranking, equal to around 69 percent of the total.

However, the number of US and Canadian limited partners in the top 30 has fallen slightly to 17, compared with 19 a year previously. European allocations are fairly well distributed across the region, with the UK represented by three organisations: Legal & General Investment Management (fifth place), Universities Superannuation Scheme (13th) and Pension Protection Fund (29th).

Finer margins when it comes to target markets

As well as allocating the most capital to the asset class, North America is also the biggest target for investing that capital. Our GI 30 finds that more than 70 percent of investors have an appetite to invest in the region. However, in this context at least, North America is not the only game in town. Almost 60 percent of investors said they wanted exposure to Europe, while for Asia-Pacific the figure was more than 30 percent.

Subordinated debt is strategy of choice

There has been much talk about how investors have become more conservative amid more challenging market circumstances. However, this is not really borne out by our research, which shows subordinated and mezzanine debt – associated with higher risk and return – to be the favoured strategy for more than 70 percent of investors. Senior debt, at the more ‘plain vanilla’ end of the spectrum, is the choice of less than 30 percent.