Percent, the private credit platform that has created the modern credit marketplace, announced the findings of a recent study completed with Coalition Greenwich on trends and data in private credit, demonstrating a seismic shift to private credit market investments.
The study, titled “Coalition Greenwich 2023 Private Credit Market Structure Study,” included asset managers, hedge funds and wealth managers (family offices and RIAs) in the U.S., with the majority of respondents “managing up to $250 million in assets for their clients.”
According to research results shared by Percent, 63% of respondents “intend to increase their allocations to private credit due to predictions of the asset class outperforming other investment opportunities – U.S. government bonds and U.S. corporate bonds (expected by 70%), commercial real estate (expected by 62%) and residential real estate (expected by 44%). The study supports current estimates from Preqin that the private credit market could more than double to $2.7 trillion by 2026.”
Facing 15-year high interest rates and 2023’s banking crisis, many small and mid-sized corporate borrowers struggle to get the funding they “need to stay afloat.”
As larger banks face more stringent capital requirements, this dynamic brings asset managers, wealth managers and family office investors “into the market, beyond the traditional large asset managers.” This shift will provide crucial funding “for small and medium-sized businesses worldwide, while at the same time bringing in yields for investors of over 10%.”
Along with market forces, technology is playing a pivotal role in “making private credit accessible to smaller institutions, wealth managers and high-net-worth retail investors.”
The research indicates that “increased access, transparency and standardization have been the key for investors budgeting more allocations to private credit markets. Fifty-seven percent of the family offices participating said more easily accessible data on private credit investments is needed, with 72% of asset managers and 67% of RIAs agreeing.”
Wealth managers also indicated optimism “around the creation of more private credit liquid alternatives, which could provide lower fees and improved liquidity, with more access to data on private credit investments and the creation of a standardized secondary market for individual loans proving to be the favored long-term solutions to improving access to the asset class.”
Other key points from the study include:
- Fifty percent of respondents already have increased their allocations in this past year.
The majority acquired their private credit exposure through funds offered by large asset management, but public liquid alternatives, such as ETFs and mutual funds, were also common.
- Seventy-one percent cite that the primary driver for investing in private credit is portfolio diversification; particularly for financial advisors whose clients are often looking to add returns to their portfolio that are uncorrelated to public equity and fixed-income markets. Income generation is cited as the second highest factor (70%).