Preqin: North American Private Debt Fundraising Lagging Last Year's Levels

Aug 4 2016 | 6:03pm ET

Fundraising for private debt strategies in North America has fallen sharply so far this year, although the number of funds actively marketing there suggests the trend may reverse in the second half, according to a new report from Preqin. 

North America-focused private debt fundraising has suffered a significant decline in 2016, Preqin’s data shows, with Europe-focused so far attracting more investor capital. 

Nineteen private-debt and direct lending vehicles focused European markets have closed so far this year, securing a total of $16 billion, compared with 31 North America-focused private debt funds that have raised $14 billion in 2016 YTD.

If current momentum continues, the European total is likely to approach the record $31 billion raised in private debt there last year, while the North American tally is likely to fall far short of the average $53 billion of investor capital raised in the past three years. 

That said, Preqin’s report notes there are currently 164 North America-focused private debt funds on the road targeting a combined $92 billion, 64% of the total global capital targeted for the strategy. Morevoer, nine of the ten largest private debt funds on the road are focusing primarily on the North American market, seven of which have held preliminary closes. In contrast, only 77 Europe-focused vehicles are in the market, seeking a total of $37 billion. 

Other key private debt fundraising facts from Preqin’s report: 

  • Global Fundraising: 2016 so far has seen a lull in private debt fundraising; so far this year just 50 funds have closed securing a combined $30 billion, which means 2016 looks set to fall short of the $94 billion secured by 147 funds which closed in 2015. 

  • Fund Sizes Fall: The average size of North America-focused funds closed so far in 2016 is 13% lower compared to those closed last year, at $491 million, while Europe-focused vehicles have diminished by 14% to stand at $842 million. 

  • Distressed Debt: Europe-focused distressed debt fundraising in 2016 YTD has outpaced that of North America-focused vehicles - $6 billion versus $4.5 billion. This is the largest margin of any private debt strategy. However, distressed debt vehicles on the road are predominantly looking towards North America; funds focused on the region are targeting $37 billion of investor capital, compared to $8 billion for Europe-focused vehicles. 

  • Fundraising Success: Despite the limited capital raised, private debt fund managers are still managing to achieve successful fundraises. Vehicles closed in 2016 YTD raised 108% of their targets, on average, up from 102% in 2015. However, funds are spending longer on the road, with those closed in 2016 marketing themselves for an average of 19 months, compared to 16 months the previous year. 

“North America has been the stronghold of private debt since its inception as an asset class, coming to particular prominence during the 2008 financial crisis,” said Ryan Flanders, head of private debt products for Preqin, in a statement. “However, since 2011 capital committed to Europe-focused private debt has hit a period of marked growth due to regulatory changes and shifts in commercial financing.” 

“The relatively low levels of capital committed to North America-focused funds in the first half of the year may not ultimately reflect the full 2016 fundraising environment,” Flanders added. “Most of the industry’s largest funds currently in market are focused on the region, and several are nearing final closes, so we may see some acceleration in the rate of fundraising. At the same time, the abundance of capital flowing into European private credit funds this year is perhaps indicative of the prominence of volatile EU headlines, and consequently the UK’s Brexit.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.  

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