Private debt investors took defensive approach in 2024
A challenging fundraising environment saw private debt investors adopt a more defensive approach in 2024, according to new Preqin research.
Although private debt fundraising saw a substantial recovery after a slow first quarter in 2024, analysts found that it was not enough to make up the ground lost during the first three months of the year.
The data provider’s Global Report 2025: Private Debt found that private debt fundraising reached $118bn (£92.7bn) by the third quarter of 2024, with Preqin believing the full-year figure will be below 2023’s $214bn and more in line with the 10-year average annual fundraising number of $161bn.
Read more: Preqin: Private debt fervour is slowing down
Investors also appear less willing to allocate to new managers than in the past, as their average fund size declined for the third year running to $78m.
By contrast, the average fund size for experienced managers is at a 10-year high, reaching $1.5bn. Preqin analysts expect this to persist and strengthen as the industry matures, favouring larger established players.
Within the context of a weaker fundraising environment for the asset class, the mean management fee for direct lending decreased by 0.26 per cent year-on-year to 1.42 per cent. Preqin expects fee pressure may continue for direct lending until fundraising forecasts improve in 2026.
Other private debt strategies, such as mezzanine, distressed debt, and special situations, tend to have higher fees, which is reflective of the active management required in those strategies.
The median management fee for non-direct lending strategies was two per cent, compared to 1.5 per cent for direct lending, both unchanged from 2023.
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Looking at notable 2024 trends, there are three signs that private debt investors shifted towards a more defensive stance. First, North America was the clear favourite for investors in 2024.
Of the private debt investors surveyed, 92 per cent rated the US as the developed market presenting the best opportunities. This trend was backed up by fundraising data, with 72 per cent of private debt capital raised globally attributed to North America-focused funds by the third quarter of 2024, reaching $85bn.
During this same period, Europe lost share. However, it is notable that Europe’s share is practically unchanged when looking at the number of funds closed, with 24 per cent of funds closed in Europe through the third quarter of 2024. This trend suggests that investors are still spending time on allocating to Europe, just not in the size they are willing to in North America.
Read more: Private debt fundraising starts to recover
At the strategy-level, direct lending saw strong investor sentiment and allocations in 2024, with fundraising hitting $93bn by the third quarter.
“We see a defensiveness, with investors allocating mostly to North America as the best-known geography; direct lending, as the simplest and best-known strategy; and disproportionately to the largest, best-known managers,” said Preqin vice president and head of private debt, research insights RJ Joshua. “Investors may remain positive on private debt in the long term, while appearing to be less adventurous overall than 12 months ago.”
Overall, investors remain committed to private debt, with 49 per cent saying they will increase their allocations to the asset class in the long term, contrasting with nine per cent saying they will reduce their allocation.
Direct lending remains the most popular of the major strategies, as 54 per cent of investors believing it presents the best opportunities within private debt.
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