Private debt funds are gaining traction with new investors
September 28, 2024
After exceptionally strong performance in 2023, private debt funds continue to deliver historically high returns and attract strong flows.
The US Morningstar LSTA Index, a good real-time proxy for returns expected from private debt funds, gained 4.4% through the first half of the year, with the European equivalent doing a touch better at +5%.
The US return is pacing above its 20-year historic average of 5.7% annually and follows on the heels of the second-highest return ever of 13.3% in 2023. Direct lending funds returned 11.1% in 2023 net of fees, beating buyout funds and most other private market strategies.
Private debt has been rewarded for its solid performance with strong fundraising momentum.
In the traditional institutional channel—where it now ranks second to PE as the top fundraising strategy—newly committed capital is on par with 2023 and tracking toward five straight years of $200 billion-plus raised globally.
In the wealth channel, fundraising has accelerated by nearly 40% YoY and could exceed $60 billion in 2024 in the US alone.
In the insurance channel, credit has accounted for 62% of TTM gross inflows to the "big seven" US alternative asset managers, and half of that is from their insurance channels.
Our analysis of the public and private debt breakdown indicates another $20 billion in incremental fundraising for the latter.
Direct lending continues to be the preferred strategy within private debt and accounted for 55% of funds closed YTD. Mezzanine and infrastructure debt funds, which were in strong demand last year, have tapped out for the time being, creating a deceivingly monolithic appearance.
Beneath the surface, private debt is anything but "vanilla." Fund sponsors continue to innovate and iterate on new strategies and substrategies, ranging from asset-backed to structured credit to fill the gaps left vacant by the withdrawal of traditional bank lenders.
For more data and analysis, download our free Global Private Debt Report.
The US Morningstar LSTA Index, a good real-time proxy for returns expected from private debt funds, gained 4.4% through the first half of the year, with the European equivalent doing a touch better at +5%.
The US return is pacing above its 20-year historic average of 5.7% annually and follows on the heels of the second-highest return ever of 13.3% in 2023. Direct lending funds returned 11.1% in 2023 net of fees, beating buyout funds and most other private market strategies.
Private debt has been rewarded for its solid performance with strong fundraising momentum.
In the traditional institutional channel—where it now ranks second to PE as the top fundraising strategy—newly committed capital is on par with 2023 and tracking toward five straight years of $200 billion-plus raised globally.
In the wealth channel, fundraising has accelerated by nearly 40% YoY and could exceed $60 billion in 2024 in the US alone.
In the insurance channel, credit has accounted for 62% of TTM gross inflows to the "big seven" US alternative asset managers, and half of that is from their insurance channels.
Our analysis of the public and private debt breakdown indicates another $20 billion in incremental fundraising for the latter.
Direct lending continues to be the preferred strategy within private debt and accounted for 55% of funds closed YTD. Mezzanine and infrastructure debt funds, which were in strong demand last year, have tapped out for the time being, creating a deceivingly monolithic appearance.
Beneath the surface, private debt is anything but "vanilla." Fund sponsors continue to innovate and iterate on new strategies and substrategies, ranging from asset-backed to structured credit to fill the gaps left vacant by the withdrawal of traditional bank lenders.
For more data and analysis, download our free Global Private Debt Report.
Tim Clarke
Lead Analyst, Private Equity
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