Limited private equity distributions creating private credit opportunity

Limited distributions by private equity funds are creating opportunities for private credit, according to AllianceBernstein.

In its latest private credit outlook, the firm highlighted that private equity funds distributed just 14 per cent of their net asset value to investors last year, down from an average of 28 per cent between 2015 and 2020.

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Macro headwinds such as rising rates and political uncertainty have dampened merger and acquisition activity and price discovery, leading to investors seeking alternative deployment opportunities.

“As private equity continues to mature as an asset class, and with both general partners and limited partners seeking liquidity, private fund finance has grown across a variety of structures,” the firm said in its report.

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“These range from traditional capital call facilities to more innovative solutions such as GP- and LP-led secondaries and continuation vehicles.

“With banks still under pressure, alternative lenders have been driving this growth, and fund finance has become a rising allocation in investors’ portfolios.”

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The firm concluded that private credit continues to offer “compelling risk-adjusted return potential”.