Demand for private credit rebounded globally in the second quarter, with 34 new funds raising $71.2 billion, more than double the previous three months, according to data from industry research firm Preqin.
European managers stood out, luring $33.8 billion, a nearly seven-fold increase compared to last quarter and just shy of the $36.4 billion raised by North American funds, the data show. In Asia, where the asset class remains in its infancy, firms raised $900 million.
The $1.5 trillion private credit market has remained relatively insulated as central banks around the world raise borrowing costs to fight above-target inflation. Loans that fund managers provide to companies are floating rate, helping preserve their value as governments have tightened financial conditions and amid concerns over a potential recession.
“Despite the macroeconomic challenges, or perhaps because of them, investors are still voting with their feet and allocating to private debt,” lead analyst RJ Joshua wrote in the report.
Beyond direct lending strategies, which focus on senior secured loans, opportunistic funds, those that focus on higher-yielding debt lower in the capital structure, also saw strong demand.
Also known as mezzanine, they brought in $18 billion globally in the second quarter after pulling in $20.7 billion three months earlier, according to the report. HPS Investment Partners attracted $12 billion for one such fund in April, the largest fundraise in the period.
Middle East Demand
Demand for private credit is likely to continue in the months ahead amid robust appetite from the Middle East, according to Jeffrey Griffiths, co-head of global private credit at Campbell Lutyens.
The Abu Dhabi Investment Authority has committed billions to funds from Apollo Global Management Inc. and Jefferies Financial Group Inc. Meanwhile, Abu Dhabi’s Mubadala Investment Co. formed an approximately $1 billion joint venture with Ares Management Corp. to scoop up stakes in direct-lending funds in the secondary market, and it plans to buy a majority stake in Fortress Investment Group, a private credit and equity manager.
“We’ve recently seen Middle East sovereign wealth funds looking to address the growing opportunity in credit dislocation,” said Griffiths. “Qatar and Saudi Arabia are going to become as, if not more, important in private credit than the United Arab Emirates already is.”
While total fundraising was up, the number of new funds declined for a third quarter, the Preqin report noted, suggesting a select few managers are luring larger allocations.
Investors are also increasingly concerned with the knock-on effects of higher interest rates, including a greater likelihood of covenant breaches and defaults as companies struggle to keep up with growing debt burdens.
Preqin noted that firms are staffing up in distressed debt and brining larger distressed funds to market, a sign of growing interest in the space.
