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$589 billion
was raised by private equity firms in
2016
have sprung up, providing much needed financing to capital-de-
prived SMEs.
More success to come
Preqin found that private debt funds account for $595 billion in
AuM, with $93 billion raised in 2016 alone. If growth rates con-
tinue on this trajectory, the industry could be running $2.5 trillion
in 10 years. But even now, returns are showing signs of weakness,
partly as a result of competition, which is causing yields to fall.
Equally, there are only so many SMEs to lend to, which could
“Many funds are oversubscribed and fundraising targets are
being met in record time.”
MELANIE COHEN, GLOBAL HEAD OF PRIVATE EQUITY AND
REAL ESTATE, DEUTSCHE BANK FUND SERVICES
lead to managers providing credit lines to poor companies. The
big risk is if managers – who do not have the experience or
understanding of loans and credit – start making a play, in which
case there could be investor casualties.
One problem – albeit unlikely for now - would be if banks made
a return and started competing with illiquid credit and loan
strategies. Bailey agreed that banks coming back into the market
would be a problem, although added private equity probably had
a more analytical and better understanding of the risks around
12
Global Custodian
The Private Equity Issue 2017
investing into debt or issuing loans than
traditional financial institutions.
Others feel the saturation risk is
overstated too. “It is important not to
underestimate the extent to which banks
– certainly in the US – have withdrawn
from lending activities, meaning there
are a significant number of good deals
for private funds to source,” says Marc de
Kloe, managing director at Adamas Asset
Management. “In that sense, I do not be-
lieve the market is saturated. In Europe,
yields have tightened on private credit
and debt because of the European Central
Bank’s (ECB) quantitative easing. That
being said, huge clean ups of bad debt
are going on in Southern Europe – most
notably Spain and Italy – so I am confi-
dent that more private debt deals will be
on the cards.”
Joe Patellaro, managing director, SS&C
Global Private Equity Services, concurs.
“Given the fund raising that our clients
continue to do in this space, it would
seem to us there is still a long term view
of a market opportunity both in the US
and in Europe,” he says.