Private debt gains traction with individual investors and insurers

At $187.4bn (£140bn) in trailing 12-month (TTM) fundraising, private debt has dominated private market fundraising in the insurance and wealth channels, according to PitchBook’s H1 2024 Global Private Debt Report.

PitchBook reports that there is significant interest from individual investors and insurers, with the US wealth channel alone expected to contribute $60bn to private debt funds this year.

“Several of the mega alternative managers have targeted 25 per cent of all fundraising to come from the wealth channel, and a few have already arrived – including Blue Owl, which derived $11.2bn of its $15.7bn in TTM fundraising from its private wealth product set, mostly in private debt,” the report noted.

Read more: Morningstar warns of risks due to private debt fundraising slog

Meanwhile, private debt has overtaken venture capital as the second highest fundraising strategy in private capital markets, behind private equity.

PitchBook notes that in the fourth quarter of 2023, private debt assets under management (AUM) reached $1.6trn globally. “Looking at just institutional drawdown funds, growth has been most explosive in direct lending – private debt’s largest substrategy – which surpassed $592bn in AUM at year-end 2023, up from $77.1bn 10 years ago,” it said.

That growth marks a compound annual growth rate of 22.6 per cent versus 10.4 per cent for private equity AUM growth during the same period, which PitchBook analysts believe indicates massive opportunity for private debt funds to expand, particularly as bank lending continues to retrench.

Read more: €6.6bn of private credit facilities were refinanced in H1

PitchBook estimates private equity fund returns for 2023 were 10.5 per cent versus 9.2 per cent for private debt, which it does not expect to change in the first quarter of 2024.

“Our preliminary return estimates for both strategies are virtually identical at 2 per cent apiece,” the report said. “As long as private debt ranks near the top of private market return tables while featuring historically low volatility, it should continue to attract strong flows from investors seeking attractive risk-adjusted returns.”

PitchBook analysts highlighted that the main risk to private debt returns is any “steeper-than-expected rate cuts by global central banks”, but this is not currently the anticipated outlook.

Read more: Private debt funds close $90.8bn in H1