Private debt fundraising fell to $167bn in 2024
Private debt fundraising fell for the third consecutive year to $167bn (£134.5bn) in 2024 but conditions are expected to pick up in 2025.
The $167bn figure is expected to be revised up as fund managers provide further data, however it is unlikely to reach the $214bn recorded in 2023.
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Research from industry data provider Preqin said that fundraising in 2024 “has yet to recapture the momentum of 2021”, noting that investors were constrained with their allocations over the period due to the so-called denominator effect.
It also highlighted subdued private equity deal flow which impacted activity in the private debt sector.
However, the analysis predicted a recovery in 2025, with lower rates set to boost dealflow.
“Investors have seen strong performance in their public assets, substantially lessening the denominator effect,” the report added. “And with the year of elections done, political risk appears to be receding.
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“So, some of the factors that have constrained fundraising to date appear to be improving. Investors have remained positive on private debt throughout, likely due to understanding that the challenges were exogenous and temporary.”
Lower interest rates have mixed effects on the private debt sector. On one hand, they mean lower returns for fund managers, but they also ease conditions for struggling borrowers so they are less likely to default on their loans.
Preqin noted that there is currently a ‘bull case’ and a ‘bear case’ for private debt.
“The bull case is that an easing monetary environment and reduced political risk will result in a rising tide lifting all boats,” Preqin said. “This will be in the form of improved IPO volumes in public markets, improved deal flow in private equity, and so improved dealflow for private debt.!
Read more: Private debt investors took defensive approach in 2024
“The bear case points to increased payment-in-kind levels in business development companies – and the potential read-across for private debt more broadly. Increased bankruptcies in the US could be signs of early credit stress. The critics say private debt is untested, with a benign default environment since the asset class got its start rising from the ashes of the GFC.!
“Our view is that 2025 will settle the matter, and that the bull case is by a long way the favourite. The bear case, principally based on concerns about default levels, may be true for pockets of the credit market, but the data shows it is not applicable to private debt.”
