Why all eyes are on Europe

“Unrelenting growth” is the description we applied to private debt capital raising as we examined the numbers produced by this year’s PDI 30 report.

The report measures the amount of capital raised by private debt investment programmes over a five-year period (on a rolling basis from year to year). If you haven’t yet had the opportunity to take a look, please do so by clicking here.

Our description is validated by the headline numbers. This year, five-year private debt fundraising rose to $462 billion compared with $395 billion when measured in 2015 and $318 billion in 2014.

There are solid reasons why investors are keeping faith in the asset class. For example, mid-market lending strategies performed well through the last downturn and appear to offer a relatively safe haven in turbulent times. Meanwhile, distressed debt strategies have proved a capital magnet as investors anticipate (rightly or wrongly) the turning of the credit cycle.

But while private debt continues to draw increasing allocations and cement its place within institutional portfolios, it still has the appearance of a North American success story rather than a global one – at least, thus far.

Our figures show that between 2011 and 2016, almost $380 billion was raised by North American-headquartered organisations compared with $83 billion by those based in Western Europe. On a city basis, New York accounted for $185 billion, a long distance ahead of London in second place on $56 billion.

When it comes to individual firms, the dominance of the US is also clear with eight of the top ten fundraisers having their headquarters in the country (M&G Investments and AXA Investment Management being the exceptions).

But the chasm currently separating the two sides of the Atlantic can be viewed positively as a growth opportunity. With the regulatory constraints on European banks in light of Basel III, the need for non-bank financing alternatives is clear.

Furthermore, lending to unsponsored deals is a regularly trawled part of the market in the US which is only now gaining real traction in Europe – but the potential, many say, is just as great.

Also in the latest issue of PDI, we interview Symon Drake-Brockman of Pemberton, a London-based firm launching two new strategies into the European market in the fourth quarter of this year and then another two in the first quarter of next year (read about it here). Across its various strategies, Pemberton is aiming to raise €2.5 billion in the next year alone.

As an expression of confidence in the future of the European private debt market, that’s pretty compelling.