Despite current economic uncertainty, an overwhelming majority (95%) of investors and managers believe the private debt market will continue to grow over the next three years, according to a survey conducted by IQ-EQ and IFI Global.
To feed into this paper, investors and managers spanning Europe, North America and Asia-Pacific with a combined overall AUM of $388 billion were interviewed in May and June 2020 for their views on the prospects of the private debt market given the recent economic dislocation.
Without a doubt, the pandemic has served the private debt market its first real test. Fundraising slumped in the first quarter of this year and it's likely the second quarter will prove substantially worse.
These results suggest that both investors and managers remain overwhelmingly optimistic, in spite of what has happened."
However, the responses provided for this survey would suggest that continued decline for the debt asset class is not likely to occur. Despite the uncertain outlook projected onto many markets, 95% of respondents believe that private debt will continue to grow. The report also uncovered:
- 86% of respondents consider the bank lending that has been extended to SMEs and mid-sized companies will have a positive effect on the market
- 62% of respondents do not anticipate there to be a drop-off in terms of fundraising
- 69% of respondents think that the consolidation that had previously been predicted to take place in the market this year will accelerate as a result of the pandemic
- Distressed debt is expected to be the best performing private debt strategy over the next three years, narrowly beating special situations
Justin Partington, IQ-EQ's group head of funds, commented on the findings: "These results suggest that both investors and managers remain overwhelmingly optimistic, in spite of what has happened. Covid-19 is not thought to have negatively impacted the debt market's growth potential, nor is there expected to be a drop off in fundraising.
"Much, of course, does depend upon what happens to the global economy, however so far most projections are seen as positive for the debt market in particular. The only thing that one can say for sure about what lies ahead: expect the unexpected."
IQ-EQ's full whitepaper on the future of the private debt market is available to download here.