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Financing the Economy 2018, the fourth edition in a series of papers analyzing the global private credit industry, has been released. The report was produced by the Alternative Credit Council (ACC) in partnership with Dechert. Here are some of the takeaways.
Private credit managers expect continued growth across the industry
Many respondents predict increasing or doing the same level of investment in the private credit markets during the next three years. Optimism is highest in relation to SME and mid-market lending, as well as distressed and asset-backed lending.
While private credit managers anticipate continued growth, they are also preparing for the possibility of an end to the current credit cycle and tougher economic conditions for borrowers.
The investor landscape of private credit is becoming increasingly diverse
A wide range of investor types, both institutional and otherwise, are committing capital to private credit.
More than 70 percent of all private credit committed capital comes from pension funds, insurers, and sovereign wealth funds. Private credit also remains open to smaller investors such as family offices, which account for five percent of capital committed to private credit.
The majority of capital committed to private credit comes from North America. A significant number of investors are also still committing capital to the industry for the first time, indicating that opportunities remain.
Lending to SMEs and the mid-market remains crucial to the global private credit industry
Half of respondents’ capital is allocated to SMEs or mid-market borrowers. But managers are also increasingly lending to other borrowers, such as large corporations and infrastructure projects.
There are regional variations in the use of fund domiciles
Managers are open to using a range of jurisdictions in response to investor demands. The larger managers will frequently offer a range of entry points to the same underlying strategy.
The Cayman Islands and Luxembourg continue to be the most popular fund domiciles, with the Irish market share remaining steady. Respondents appear to have been making less use of U.S. domiciled fund structures during the last 12 months.
The ‘Financing the Economy 2018’ report relied on a survey of nearly 70 private credit managers who collectively manage an estimated $470 billion in private credit investments across a broad cross-section of jurisdictions and strategies.