PitchBook's latest private equity analyst note delves into the recent growth in private debt fundraising, exploring the drivers supporting the strategy's growth in popularity as well as enabling macro conditions and the effects such vehicles are exerting upon the marketplace.
- Private debt funds raised $118 .7 billion in commitments in 2017— the most of any year on record. This represents a CAGR of 20. 5% since 2009, more than 2. 5x the 8 .1% CAGR of private equity buyout funds.
- Fundraising growth has been underpinned by a variety of sub-strategies, though the expansion in direct lending vehicles is most notable. $52.6 billion was raised in direct lending funds in 2017. Opportunities have grown primarily due to regulations that cultivated the demand for financing from nonbank lenders, as well as the development of alternative asset space more broadly.
- The proliferation of private debt means that more lenders are competing on price and terms, leading to unprecedented levels of cov-lite loans and the use of add-backs to make issuers seem more creditworthy. This heightened competition will surely benefit borrowers; however, these perceived benefits for borrowers translate into a riskier return profile for lenders and their limited partners.