Content Includes: Plans for 2015 Are investment consultants recommending their clients invest more capital in private debt in 2015 compared to 2014? Preqin Special Report: Investment Consultants in Private February 2015 Fund Types Which private debt fund types are consultants viewing most favourably at present? Regions of Interest Do investment consultants view Europe as presenting more attractive investment opportunities for private debt than North America? Sources of Are consultants recommending their clients have a separate allocation to private debt? Growing Prominence of Private Is the private debt industry set for further growth in the future? alternative assets. intelligent data.
Preqin Special Report: Investment Consultants in Private Click here to download the data pack. Investment Consultants in Private Preqin recently surveyed 30 investment consultants in the private debt asset class in order to understand their activity in the space and to gauge their views on the current private debt market. The respondents represent a cross-section of global investment consultants, including a number of well-known consultants which have an established position in the private debt sphere. Fig. 1: Breakdown of Investment Consultant Respondents by Location Make-Up of Private Investment Consultants 23% North America The majority of respondents (7) are based in North America, with the remainder spread out among various European nations (23%), as well as Asia and other countries (), as shown in Fig. 1. This more pronounced interest from North Americabased entities in the private debt asset class is unsurprising considering the amount of capital invested in private debt in North America compared to the rest of the world. 7 Europe Asia & Rest of World Investment consultants that advise clients, or actively manage investments in private debt on behalf of clients, vary in size. When compared to investment consultants that advise their clients on investments in private equity, some interesting trends can also be seen (Fig. 2). A notable 62% of consultants active in private debt advise or manage assets in excess of $10bn; in comparison, this fi gure is 4 for consultants active in the private equity space. This can be somewhat explained by private debt still being viewed by many as a new and emerging asset class, and as such, larger investment consultants with more resources may be in a better position to advise their clients on investments in the space. Of the investment consultants tracked by Preqin, 13% advise or manage less than $1bn, with a further 14% advising or managing between $1bn and $5bn. The remaining advise or manage between $5bn and $10bn in total assets. One investment consultant, which advises on assets of just over $1bn, informed Preqin that it is now advising more clients on private debt than ever before and typically advises its clients to invest through a separate private debt allocation. This is one illustration of the emergence of private debt in the portfolios of the clients investment consultants advise, with some consultants choosing a dedicated and standalone allocation to private debt. Overview of Recommendations for Private in 2015 In an effort to investigate their plans and attitudes to private debt in the near future, we asked investment consultants what their intentions are for the private debt asset class over the next 12 months. Over a third (35%) of respondents suggested that their clients should increase their allocation to private debt in the coming year, with a further 54% recommending they maintain their allocation. Only 12% said they would recommend their clients invest less in the asset class in the next 12 months. This indicates a positive outlook on the asset class in 2015; the results also mirror the fi ndings of Preqin Special Report: Private Fig. 2: Breakdown of Investment Consultants Active in Private and Private Equity by Assets under Advisement/Management Fig. 3: Breakdown of Investment Consultants Recommendations for 2015 Compared to 2014 Proportion of Respondents 7 6 5 4 3 2 13% 14% 14% Less than $1bn 24% 15% 62% 4 $1-5bn $5-10bn More than $10bn Assets under Advisement/Management Private Investment Consultants Private Equity Investment Consultants 54% 12% Recommend Clients Invest More Capital in Private in 2015 35% Recommend Clients Invest the Same Amount of Capital in Private in 2015 Recommend Clients Invest Less Capital in Private in 2015 Source: Preqin Investor Intelligence and Private Equity Online 2 2015 Preqin Ltd. / www.preqin.com
Click here to download the data pack. Preqin Special Report: Investment Consultants in Private, November 2014, which showed a signifi cant proportion of investors were planning to allocate further capital to private debt in the coming year. Private Fund Types, Regions and Structures Viewed as Presenting Attractive Opportunities Deciding which private debt fund types to invest in to achieve the best combination to meet clients portfolio objectives is a key consideration for investment consultants in a complex market environment. Preqin asked investment consultants which fund types they feel are presenting the best opportunities, with the results showing a similar trend to the investor responses detailed in Preqin Special Report: Private, November 2014; direct lending funds are seen an attractive option for the greatest proportion (62%) of investment consultants (Fig. 4). A large US-based consultant, with over $30bn of alternative assets under advisement, is one such fi rm. In the private debt space, the fi rm has a preference for direct lending and is looking to commit more capital to private debt in 2015 compared to the previous year. The investment consultant also feels private debt offers higher risk-adjusted returns than that of public debt. Other fund types viewed favourably include real estate debt (48%) and distressed debt (45%). As well as fund types, it is imperative that investment consultants have a clear idea which regions they feel present the best opportunities for private debt investments. Fig. 5 shows that investment consultants lean heavily towards Europe, with the majority (83%) viewing it as a region that is likely to provide attractive investment opportunities going forward. This can perhaps be explained by their expectation that regulation regarding the deleveraging of banks balance sheets will create further opportunities for managers targeting the region. In general, private debt in the Western hemisphere is viewed positively by investment consultants, with 5 also viewing North America, which has a more established private debt market, favourably. Other regions were not perceived so favourably, with just under a quarter of consultants believing that Asia presents attractive opportunities in the asset class. With regards to specifi c direct lending capital structure preferences, senior debt and blended/opportunistic structures proved to be the most favourable among investment consultants, with 54% and 5 of consultants preferring these structures respectively (Fig. 6). The proportion of consultants with a Fig. 4: Fund Types Viewed by Investment Consultants as Presenting Attractive Opportunities at Present Proportion of Respondents 7 6 5 4 3 2 62% Direct Lending 48% Real Estate preference for junior/subordinated debt structures (12%) is in line with the views of investors as featured in Preqin Special Report: Private, July 2014, as the lowest proportion of both investment consultants and investors selected this as a preference. One such fi rm is a UK-based consultant with 350mn under advisement. It has a preference for junior/ subordinated debt and is looking to commit less to the asset class in future, as it believes opportunities within the space will eventually diminish. Sources of 45% Distressed Preqin asked alternatives investment consultants which allocations they typically recommend their clients utilize when investing in private debt. Twenty percent of respondents recommend their clients invest in private debt via part of a general alternatives allocation, with the same proportion recommending investment from a private equity allocation. Including private debt in a fi xed income allocation is the preferred method of investing in private debt for 1 of respondents. Importantly, 13% recommend investing in private debt through a separate allocation to the asset class, showing some investment consultants now view private debt as a standalone asset class, which looks set to continue going forward. 28% Infrastructure Fund Type 24% Mezzanine 21% 21% Private Fund of Funds Venture Fig. 5: Regions Viewed by Investment Consultants as Presenting Attractive Opportunities at Present Proportion of Respondents 9 8 7 6 5 4 3 2 83% 2015 Preqin Ltd. / www.preqin.com 5 23% Europe North America Asia Region Preqin s Private Data: A Vital Tool Preqin s Private Online contains detailed information on all aspects of the private debt industry worldwide, including over 1,600 private debt funds 700 private debt fund managers 1,300 investors 100 investment consultants active in private debt. Plus, view the most up-to-date private debt benchmarks and view individual performance data for over 620 private debt funds. For more information, please visit: www.preqin.com/privatedebt 3
Preqin Special Report: Investment Consultants in Private Click here to download the data pack. Investment Consultants Attitudes to the Growth of the Private Asset Class Fig. 6: Capital Structures Viewed by Investment Consultants as Presenting Attractive Opportunities at Present One of the fundamental questions affecting the long-term outlook for private debt is whether recent growth of the asset class is temporary, driven by market opportunity in light of bank deleveraging, or if the asset class is likely to continue to grow in the future. A substantial 8 of respondents stated they expected the asset class to continue to grow in the longer term, compared to only that thought it was more likely a short-term yield play. The remaining were unsure about the long-term outlook on the private debt asset class. Of the investment consultants that viewed the growth of private debt as likely to continue in the long term, many noted tightening bank regulations as a key factor. The regulatory and structural changes to the banking sector leads companies to seek alternative sources of funding. Stronger risk-adjusted returns for private debt versus public debt were also cited as a key factor by a number of respondents. Proportion of Respondents 6 5 4 3 2 54% Senior 5 Blended/ Opportunistic 31% Mezzanine Structural Preference 23% Unitranche 12% Junior/ Subordinated, Investment consultants that believe the growth of private debt will unlikely be sustained in the future generally stated that they expect banks will eventually increase their level of lending. These consultants were mostly of the opinion that banks funding cost advantage will overwhelm most of the very high cost funds that are being opened or extended, and this will lead borrowers to gravitate back to the banks when they can. With fi xed income instruments such as sovereign debt and traditional high yield portfolios struggling to produce attractive returns, clients of investment consultants are increasingly turning to private debt in search of higher returns. Investors such as pension funds, which typically approach investments via a liability matching model, are able to invest for the long term and take advantage of the illiquidity premium provided by the asset class. Fig. 7: Source of Recommended by Investment Consultants When Investing in Private Fig. 8: Investment Consultants Views on the Long-Term Outlook for Private Proportion of Respondents 25% 2 15% 5% 2 2 1 13% 13% Demand for Private Is Likely to Persist in the Long Term General Alternatives Part of Private Equity Part of Fixed Income Part of Opportunistic Investments Separate Private Part of More than One Specific Other 8 Demand for Private Is Likely to Persist Only in the Short Term Unsure about the Long- Term Outlook for Private Source of Used for Private Funds Coming Soon! 2015 Preqin Global Private Report The inaugural edition of the Preqin Global Private Report is due for release in March 2015 and forms part of the 2015 Preqin Global Alternatives Reports series. Covering a wide range of topics, with expert commentary, key trends from recent years, historical statistics, league tables and survey results, the report is an essential tool for anyone seeking to understand the latest developments affecting the private debt industry. Register your interest and we will contact you when it is available: www.preqin.com/reports 4 2015 Preqin Ltd. / www.preqin.com
Source new investors for funds Identify new investment opportunities Conduct competitor and market analysis Track firms with capital available to invest Develop new business Register for demo access to find out how Preqin s Private Online can help your business: www.preqin.com/privatedebt alternative assets. intelligent data.
Preqin Special Report: Investment Consultants in Private Preqin Private Online February 2015 With global coverage and detailed information on all aspects of the private debt asset class, Preqin s industry-leading Private Online service keeps you up-to-date on all the latest developments in the private debt universe. Source new investors for funds and co-investments Find the most relevant investors, with access to detailed profi les for over 1,300 institutional investors actively investing in private debt, including information on their current fund searches and mandates, direct contact information and sample investments. Identify potential investment opportunities View in-depth profi les for over 1,600 unlisted private debt funds, including information on investment strategy, geographic focus, fundraising progress, service providers used and sample investors. Find active fund managers in private debt Search for fi rms actively targeting private debt investments. View information on key contacts, fi rm fundraising and performance history, and applied strategies of the fi rm. Analyze the latest private debt fundraising activity See which fi rms are currently on the road raising a private debt fund and which will be coming to market soon. Analyze fundraising over time by fund type, manager location and regional focus, and conduct competitor analysis. Benchmark performance Identify which fund managers have the best track records, with performance benchmarks for private debt funds and performance details for over 600 individual named funds. View detailed profiles of service providers Search for administrators, placement agents and law fi rms active in the private debt industry by type and location of funds, and the managers they work with. If you want any further information, or would like to request a demo of our products, please contact us: New York: One Grand Central Place 60 E 42nd Street Suite 630 New York NY 10165 Tel: +1 212 350 0100 Fax: +1 440 445 9595 London: 3rd Floor Vintners Place 68 Upper Thames Street London EC4V 3BJ Tel: +44 (0)203 207 0200 Fax: +44 (0)87 0330 5892 Singapore: One Finlayson Green #11-02 Singapore 049246 Tel: +65 6305 2200 Fax: +65 6491 5365 San Francisco: Find out how Preqin s range of private debt products and services can help you: www.preqin.com/privatedebt All rights reserved. The entire contents of Preqin Special Report: Investment Consultants in Private, February 2015 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Investment Consultants in Private, February 2015 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent fi nancial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Investment Consultants in Private, February 2015. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Investment Consultants in Private, February 2015 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Investment Consultants in Private, February 2015 or for any expense or other loss alleged to have arisen in any way with a reader s use of this publication. 1700 Montgomery Street Suite 134 San Francisco CA 94111 United States Tel: +1 415 835 9455 Fax: +1 440 445 9595 Email: info@preqin.com Web: www.preqin.com