At the opening of the PDI Capital Structure Forum 2017, we asked the audience the same questions we opened with in 2016 and a comparison of the results give some insights into how the industry has evolved in the past 12 months.
The first question, regarding the best returning strategies, found that middle market direct lending is still the dominant strategy for returns. However, it has fallen back somewhat which may reflect the market being in a late-cycle stage. Riskier but typically higher returning strategies such as high-yield and venture debt appear to be in the ascendancy.
Returns expectations seem to have generally dropped, with most audience members now expecting private debt to yield between 5 percent and 8 percent, while those expecting returns of 8 percent to 12 percent have fallen back. However, we also see some expecting returns of over 12 percent, which could again reflect more adoption of riskier but higher-yielding niches within the private debt space.
When it comes to which types of funds can provide the best risk adjusted returns, direct lending remains by far the leader with half the audience picking this option. However, mezzanine and distressed lending seem to be taking a larger share, while unitranche falls back.