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Content Includes:
Preqin Special Report:
Investment Consultants in
Private Debt
Plans for 2015
Are investment consultants
recommending their
clients invest more capital
in private debt in 2015
compared to 2014?
February 2015
Fund Types
Which private debt fund
types are consultants
viewing most favourably
at present?
Regions of Interest
Do investment consultants
view Europe as presenting
more attractive
investment opportunities
for private debt than North
America?
Sources of Allocation
Are consultants
recommending their
clients have a separate
allocation to private debt?
Growing Prominence of
Private Debt
Is the private debt industry
set for further growth in the
future?
alternative assets. intelligent data.
Preqin Special Report: Investment Consultants in Private Debt
Click here to download
the data pack.
Investment Consultants in Private Debt
Preqin recently surveyed 30 investment consultants in the
private debt asset class in order to understand their activity in
the space and to gauge their views on the current private debt
market. The respondents represent a cross-section of global
investment consultants, including a number of well-known
consultants which have an established position in the private
debt sphere.
Make-Up of Private Debt Investment Consultants
Fig. 1: Breakdown of Investment Consultant Respondents
by Location
7%
North America
23%
The majority of respondents (70%) are based in North America,
with the remainder spread out among various European nations
(23%), as well as Asia and other countries (7%), as shown in
Fig. 1. This more pronounced interest from North Americabased entities in the private debt asset class is unsurprising
considering the amount of capital invested in private debt in
North America compared to the rest of the world.
Investment consultants that advise clients, or actively manage
investments in private debt on behalf of clients, vary in size.
When compared to investment consultants that advise their
clients on investments in private equity, some interesting trends
can also be seen (Fig. 2). A notable 62% of consultants active
in private debt advise or manage assets in excess of $10bn;
in comparison, this figure is 47% for consultants active in the
private equity space. This can be somewhat explained by
private debt still being viewed by many as a new and emerging
asset class, and as such, larger investment consultants with
more resources may be in a better position to advise their clients
on investments in the space. Of the investment consultants
tracked by Preqin, 13% advise or manage less than $1bn, with
a further 14% advising or managing between $1bn and $5bn.
The remaining 10% advise or manage between $5bn and $10bn
in total assets.
Europe
Asia & Rest of World
70%
Source: Preqin Investment Consultant Survey
to invest through a separate private debt allocation. This is one
illustration of the emergence of private debt in the portfolios of
the clients investment consultants advise, with some consultants
choosing a dedicated and standalone allocation to private debt.
Overview of Recommendations for Private Debt in 2015
One investment consultant, which advises on assets of just over
$1bn, informed Preqin that it is now advising more clients on
private debt than ever before and typically advises its clients
In an effort to investigate their plans and attitudes to private debt
in the near future, we asked investment consultants what their
intentions are for the private debt asset class over the next 12
months. Over a third (35%) of respondents suggested that their
clients should increase their allocation to private debt in the
coming year, with a further 54% recommending they maintain
their allocation. Only 12% said they would recommend their
clients invest less in the asset class in the next 12 months.
This indicates a positive outlook on the asset class in 2015; the
results also mirror the findings of Preqin Special Report: Private
Fig. 2: Breakdown of Investment Consultants Active
in Private Debt and Private Equity by Assets under
Advisement/Management
Fig. 3: Breakdown of Investment Consultants’
Recommendations for 2015 Compared to 2014
70%
62%
Proportion of Respondents
60%
12%
47%
50%
40%
30%
13%14%
14%
10%
35%
Recommend Clients
Invest the Same
Amount of Capital in
Private Debt in 2015
Private Equity
Investment
Consultants
24%
20%
Private Debt
Investment
Consultants
15%
10%
Recommend Clients
Invest More Capital in
Private Debt in 2015
54%
Recommend Clients
Invest Less Capital in
Private Debt in 2015
0%
Less than
$1bn
$1-5bn
$5-10bn
More than
$10bn
Assets under Advisement/Management
Source: Preqin Investor Intelligence and Private Equity Online
2
Source: Preqin Investment Consultant Survey
© 2015 Preqin Ltd. / www.preqin.com
Click here to download
the data pack.
Preqin Special Report: Investment Consultants in Private Debt
Fig. 4: Fund Types Viewed by Investment Consultants as
Presenting Attractive Opportunities at Present
As well as fund types, it is imperative that investment
consultants have a clear idea which regions they feel present
the best opportunities for private debt investments. Fig. 5
shows that investment consultants lean heavily towards
Europe, with the majority (83%) viewing it as a region that is
likely to provide attractive investment opportunities going
forward. This can perhaps be explained by their expectation
that regulation regarding the deleveraging of banks’ balance
sheets will create further opportunities for managers targeting
the region. In general, private debt in the Western hemisphere
is viewed positively by investment consultants, with 57% also
viewing North America, which has a more established private
debt market, favourably. Other regions were not perceived so
favourably, with just under a quarter of consultants believing that
Asia presents attractive opportunities in the asset class.
With regards to specific direct lending capital structure
preferences, senior debt and blended/opportunistic structures
proved to be the most favourable among investment consultants,
with 54% and 50% of consultants preferring these structures
respectively (Fig. 6). The proportion of consultants with a
Fig. 5: Regions Viewed by Investment Consultants as
Presenting Attractive Opportunities at Present
90%
48%
50%
45%
24%
20%
21%
21%
Venture Debt
28%
30%
Private Debt
Fund of Funds
40%
10%
Mezzanine
Infrastructure
Debt
Distressed
Debt
0%
Fund Type
Source: Preqin Investment Consultant Survey
preference for junior/subordinated debt structures (12%) is in
line with the views of investors as featured in Preqin Special
Report: Private Debt, July 2014, as the lowest proportion of
both investment consultants and investors selected this as
a preference. One such firm is a UK-based consultant with
£350mn under advisement. It has a preference for junior/
subordinated debt and is looking to commit less to the asset
class in future, as it believes opportunities within the space will
eventually diminish.
Sources of Allocation
Preqin asked alternatives investment consultants which
allocations they typically recommend their clients utilize when
investing in private debt. Twenty percent of respondents
recommend their clients invest in private debt via part of a general
alternatives allocation, with the same proportion recommending
investment from a private equity allocation. Including private
debt in a fixed income allocation is the preferred method of
investing in private debt for 17% of respondents. Importantly,
13% recommend investing in private debt through a separate
allocation to the asset class, showing some investment
consultants now view private debt as a standalone asset class,
which looks set to continue going forward.
Preqin’s Private Debt Data: A Vital Tool
Preqin’s Private Debt Online contains detailed information
on all aspects of the private debt industry worldwide,
including over
83%
80%
Proportion of Respondents
62%
60%
Direct
Lending
Deciding which private debt fund types to invest in to achieve
the best combination to meet clients’ portfolio objectives is a key
consideration for investment consultants in a complex market
environment. Preqin asked investment consultants which fund
types they feel are presenting the best opportunities, with
the results showing a similar trend to the investor responses
detailed in Preqin Special Report: Private Debt, November
2014; direct lending funds are seen an attractive option for the
greatest proportion (62%) of investment consultants (Fig. 4).
A large US-based consultant, with over $30bn of alternative
assets under advisement, is one such firm. In the private debt
space, the firm has a preference for direct lending and is looking
to commit more capital to private debt in 2015 compared to the
previous year. The investment consultant also feels private debt
offers higher risk-adjusted returns than that of public debt. Other
fund types viewed favourably include real estate debt (48%) and
distressed debt (45%).
Proportion of Respondents
70%
Private Debt Fund Types, Regions and Structures Viewed
as Presenting Attractive Opportunities
Real Estate
Debt
Debt, November 2014, which showed a significant proportion of
investors were planning to allocate further capital to private debt
in the coming year.
70%
•
•
•
•
57%
60%
50%
40%
30%
23%
20%
10%
1,600 private debt funds
700 private debt fund managers
1,300 investors
100 investment consultants active in private debt.
Plus, view the most up-to-date private debt benchmarks
and view individual performance data for over 620
private debt funds.
For more information, please visit:
0%
Europe
North America
Asia
Region
www.preqin.com/privatedebt
Source: Preqin Investment Consultant Survey
© 2015 Preqin Ltd. / www.preqin.com
3
Click here to download
the data pack.
Preqin Special Report: Investment Consultants in Private Debt
60%
54%
50%
50%
40%
31%
30%
23%
20%
12%
10%
Junior/
Subordinated Debt
Unitranche Debt
Of the investment consultants that viewed the growth of private
debt as likely to continue in the long term, many noted tightening
bank regulations as a key factor. The regulatory and structural
changes to the banking sector leads companies to seek
alternative sources of funding. Stronger risk-adjusted returns for
private debt versus public debt were also cited as a key factor
by a number of respondents.
Mezzanine
Blended/
Opportunistic Debt
0%
Senior Debt
One of the fundamental questions affecting the long-term
outlook for private debt is whether recent growth of the asset
class is temporary, driven by market opportunity in light of bank
deleveraging, or if the asset class is likely to continue to grow
in the future. A substantial 87% of respondents stated they
expected the asset class to continue to grow in the longer term,
compared to only 7% that thought it was more likely a short-term
yield play. The remaining 7% were unsure about the long-term
outlook on the private debt asset class.
Fig. 6: Capital Structures Viewed by Investment Consultants
as Presenting Attractive Opportunities at Present
Proportion of
Respondents
Investment Consultants’ Attitudes to the Growth of the
Private Debt Asset Class
Structural Preference
Source: Preqin Investment Consultant Survey,
Investment consultants that believe the growth of private debt
will unlikely be sustained in the future generally stated that they
expect banks will eventually increase their level of lending.
These consultants were mostly of the opinion that banks’ funding
cost advantage will overwhelm most of the very high cost funds
that are being opened or extended, and this will lead borrowers
to gravitate back to the banks when they can.
With fixed income instruments such as sovereign debt and
traditional high yield portfolios struggling to produce attractive
returns, clients of investment consultants are increasingly
turning to private debt in search of higher returns. Investors
such as pension funds, which typically approach investments
via a liability matching model, are able to invest for the long
term and take advantage of the illiquidity premium provided by
the asset class.
Fig. 7: Source of Allocation Recommended by Investment
Consultants When Investing in Private Debt
Fig. 8: Investment Consultants’ Views on the Long-Term
Outlook for Private Debt
20%
20%
20%
17%
7%
13%
15%
13%
7%
7%
Demand for Private Debt
Is Likely to Persist in the
Long Term
Other
Proportion of
Respondents
25%
Demand for Private Debt
Is Likely to Persist Only in
the Short Term
10%
10%
5%
Part of More than One
Specific Allocation
Separate Private Debt
Allocation
Part of Opportunistic
Investments Allocation
Part of Fixed Income
Allocation
Part of Private Equity
Allocation
General Alternatives
Allocation
0%
Unsure about the LongTerm Outlook for Private
Debt
87%
Source of Allocation Used for Private Debt Funds
Source: Preqin Investment Consultant Survey
Source: Preqin Investment Consultant Survey
Coming Soon! 2015 Preqin Global Private Debt Report
The inaugural edition of the Preqin Global Private Debt Report is due for release in March 2015 and
forms part of the 2015 Preqin Global Alternatives Reports series.
Covering a wide range of topics, with expert commentary, key trends from recent years, historical
statistics, league tables and survey results, the report is an essential tool for anyone seeking to
understand the latest developments affecting the private debt industry.
Register your interest and we will contact you when it is available:
www.preqin.com/reports
4
© 2015 Preqin Ltd. / www.preqin.com
Source new investors for funds
Identify new investment opportunities
Conduct competitor and market analysis
Track firms with capital available to invest
Develop new business
Register for demo access to find out how Preqin’s Private Debt Online can help
your business:
www.preqin.com/privatedebt
alternative assets. intelligent data.
Preqin Special Report:
Investment Consultants in Private Debt
February 2015
Preqin Private Debt Online
With global coverage and detailed information on all aspects of the private debt asset
class, Preqin’s industry-leading Private Debt Online service keeps you up-to-date on
all the latest developments in the private debt universe.
Source new investors for funds and co-investments
Find the most relevant investors, with access to detailed profiles for over 1,300
institutional investors actively investing in private debt, including information on
their current fund searches and mandates, direct contact information and sample
investments.
Identify potential investment opportunities
View in-depth profiles for over 1,600 unlisted private debt funds, including information
on investment strategy, geographic focus, fundraising progress, service providers
used and sample investors.
Find active fund managers in private debt
Search for firms actively targeting private debt investments. View information on key
contacts, firm fundraising and performance history, and applied strategies of the firm.
Analyze the latest private debt fundraising activity
See which firms are currently on the road raising a private debt fund and which will be
coming to market soon. Analyze fundraising over time by fund type, manager location
and regional focus, and conduct competitor analysis.
If you want any further information, or
would like to request a demo of our
products, please contact us:
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Suite 630
New York
NY 10165
Tel: +1 212 350 0100
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London:
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Vintners’ Place
68 Upper Thames Street
London
EC4V 3BJ
Tel: +44 (0)203 207 0200
Fax: +44 (0)87 0330 5892
Benchmark performance
Singapore:
Identify which fund managers have the best track records, with performance
benchmarks for private debt funds and performance details for over 600 individual
named funds.
View detailed profiles of service providers
Search for administrators, placement agents and law firms active in the private debt
industry by type and location of funds, and the managers they work with.
One Finlayson Green
#11-02
Singapore 049246
Tel: +65 6305 2200
Fax: +65 6491 5365
San Francisco:
Find out how Preqin’s range of private debt products and services can
help you:
www.preqin.com/privatedebt
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While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such
information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special
Report: Investment Consultants in Private Debt, February 2015 are accurate, reliable, up-to-date or complete.
Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or
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