Private debt managers secured $191.2 billion last year, representing a 12.1% YoY gain and the second-highest annual tally on record, according to an update from Pitchbook.
As noted in a report from Pitchbook, investors continued piling into these funds “despite the puzzling macroeconomic environment.” This type of activity has been attributed to “a confluence of factors including negative real yields on government bonds, lower-than-expected default rates, accommodative monetary and fiscal policy, and positive recent performance by private debt as an asset class.” As mentioned in the report, private debt funds in Q2 2021 “recorded their strongest performance since 2010.”
The Pitchbook report revealed that debt strategies with more equity-like characteristics, such as mezzanine and distressed debt funds, “buoyed the performance of private debt overall, while direct lending—which relies more on steady interest payments from portfolio companies—experienced more modest gains.”
As noted in the update, private debt is “an important asset class for a variety of stakeholders.”
As explained by Pitchbook researchers, businesses unable to obtain financing from banks or via public debt issuance can access capital “to help them grow.” Meanwhile, investors searching for yield can “achieve it without taking on added risk.”
And the economy benefits as the lock up, draw down structure of these funds “allows fund managers to deploy capital when other lenders pull back, which has a stabilizing effect during credit market dislocations,” the report added.
The report further revealed:
“An increasing number of lenders are operating in the life sciences market. Examples include several of the large business development companies and smaller fund lenders, which are providing new borrowing opportunities for VC-backed companies. This shift, along with the continued growth of the broader venture market, portends a further boost to venture lending. Although interest rates are likely to increase from the basement rates that have marked the past decade, the use cases of borrowing and the return profile of venture lending will likely prove to be insulators against low to moderate rate increases.”
