With the world having been turned upside down in 2020, it does rather make you question the merits of predicting the year ahead. Then again, one can only hope that a global pandemic proves to have been something of an outlier and that some level of normality (and hence predictability) is a feature of the period ahead. Below are a few thoughts on trends we think will be regular talking points this year.
More partnering up
Just before the holidays, news broke that US fund manager Churchill Asset Management was forming a direct lending strategic partnership with Paris-based Tikehau Capital to enable them to exploit opportunities in each other’s regions. It’s long been an ambition for US managers to successfully break into Europe and for European managers to get a foothold in the US. Teaming up may be a better way than going it alone, and we can reasonably expect more of the same. Partnering was also the method for sovereign wealth funds to gain private debt exposure last year – see here and here. We wouldn’t bet against other large institutions taking similar leaps of faith.
Opportunities go up as government support goes down
In a recent feature, we discovered just how dominant government schemes became in supporting companies – especially smaller ones – through the lockdowns. This was not surprising as the financing was cheaper than alternatives, including private debt. But as vaccinations gather pace and support schemes wind down, there should be big opportunities for private debt to provide refinancing to viable companies. For those firms finding the going particularly tough, distressed investors will be waiting in the wings.
Investor appetite will stay strong and new investors will make their mark
Despite some concerns about performance over the last year, our LP Perspectives study (to be published with our February issue) reveals that only 14 percent of LPs expect their private debt portfolios to fall short of benchmarks, compared with 16 percent in the equivalent study a year ago. Meanwhile, 21 percent think benchmarks will be exceeded versus 13 percent one year ago. A relatively young asset class, private debt is attracting interest all the time – including, as a recent BlackRock study shows, from family offices.
Finally, a reminder that today is the last day we can accept votes for our annual awards. They come to a close at midnight PST so, if you haven’t done so already, please make your opinions count here.
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