Private debt fundraising starts to recover
Private debt fundraising is starting to recover following a weaker start to the year, Preqin has reported.
In the data firm’s third quarter update on the private debt market, it revealed that fundraising for private debt was the strongest since the fourth quarter of 2023, with $51bn (£39.63bn) raised. However, Preqin noted that fundraising volumes still lag year-on-year.
Direct lending was responsible for 76 per cent of third quarter fundraising, with $39bn raised.
Furthermore, default rates remain low, with the Proskauer Credit Default Index showing a default rate of 2.71 per cent for private debt in the second quarter, while Fitch Ratings published a default rate of 4.06 per cent for broadly syndicated loans for the trailing 12 months to June 2024.
Read more: Preqin: Private debt fervour is slowing down
The average fund size increased from $1.1bn in the second quarter to $1.4bn in the third quarter of this this year, which Preqin said points to “fragility, as fundraising relies on a narrower base of funds.”
RJ Joshua, VP, head of private debt and fees, research insights, at Preqin said that the data paints an optimistic picture of private credit.
“Looking to the end of the year, the outlook for private debt is broadly positive,” he said.
“Granted, fundraising has yet to catch up from the weak first quarter, but our investor survey report shows strong sentiment toward private debt from investors.
“And with a more benign macro-outlook, we may yet see a catch-up as investors look to benefit from a potential soft landing of low interest rates and low inflation.”
In June, Preqin conducted an investor survey which found that 86 per cent of investors said private debt had met or exceeded their expectations, while 92 per cent said they will be keeping or adding to their private debt positions in the next 12-months.
Read more: Green shoots emerge in fundraising climate
Joshua added that there have now been two consecutive quarters of improvement from a weak first quarter. Yet so far in 2024, fundraising is tracking at 75 per cent of what it was by this same period in 2023.
Preqin’s data also found that funds in market are showing steady growth, which suggests organic growth in supply to meet demand. According to the data, funds in market are currently targeting $504bn, up from $456bn in December 2023.
Preqin’s recently-released third quarter private equity report predicted that lower interest rates should lead to higher valuations and the possibility of more exits and deals in private equity. This should in turn boost the level of dealmaking activity in private credit.
Read more: Private debt AUM to hit $2.64tn by 2029
