AIMA: ACC Expects Private Credit Market To Top $1T By 2020

Oct 4 2017 | 7:41pm ET

The booming market for global private credit shows no signs of letting up, according to research from AIMA’s Alternative Credit Council, and is expected to crest $1 trillion in size by 2020.

The Alternative Credit Council (ACC) is the private credit affiliate of the Alternative Investment Management Association (AIMA). Global law firm Dechert sponsored the study, which is titled “Financing the Economy 2017”.

The industry currently manages approximately $600 billion in assets, the study found, representing a 14-fold increase since since 2000. At current growth rates, the sector will reach $1 trillion in assets by the end of the decade, the ACC forecasts.

The report further highlighted that small-to-medium-sized businesses remain a dominant feature of the lending market, with 34% of total committed capital now being lent to SMEs and the middle market. Large businesses, meanwhile, only receive 22% of all lending.  

Other highlights:

  • The survey suggests that private credit managers are having to demonstrate more flexibility as both covenant and coupon terms have shifted more favorably towards the borrower. Nearly half of private credit managers stated that covenants had become less demanding over the past three years with only 14% saying loan terms had become more demanding.
  • The flexibility shown by private credit managers with respect to loan covenants is matched by their focus on lending standards and commitment to robust risk analysis, with 85% of all private credit managers citing these factors as their most resource intensive activity. At the same time, the preference of private credit managers for senior secure positions within the capital structure means that they are well placed to protect the interests of their investors, says the report.
  • Dry powder is approximately one-third of the industry’s total assets. This is the lowest level it has been for several years and was also considerably higher during the 2000-2008 period, when it was frequently close to 50% of total assets.
  • Most private credit activity continues to take place in the U.S. However, the popularity of the U.S. market is also helping to fuel interest in other markets, as managers look for new growth opportunities. Beyond the key markets of the U.S. and the UK, managers nominated Germany, France and Canada as countries with significant opportunities for lending growth. Meanwhile, regulatory reforms in Europe and Asia-Pacific are supporting the sector as it expands into new markets.
  • The research suggests that private credit managers are still very much adopting a “wait and see” approach regarding how best to position themselves in a Brexit environment, with 38% of private credit managers uncertain whether it would make the UK a more or less attractive place for financing.
  • More than two-fifths (45%) of managers say they target loans between $25 million and $100 million in size, with around one-in-five targeting loans in excess of $100 million. Deals are also becoming longer-term investments, with nearly two-thirds (63%) of private credit managers preferring terms of 2-6 years and almost a quarter of them (24%) favoring terms of six years or greater, up from only 8% in 2015.

“Private credit has become a permanent feature of the lending landscape,” said AIMA’s CEO Jack Inglis in a statement. “Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fuelling its expansion into new markets.”

“The growth of [this] industry demonstrates how this type of financing is becoming increasingly integral to funding ecosystems globally,” added Stuart Fiertz, chair of the Alternative Credit Council and co-founder of Cheyne Capital. “For investors too, alternative credit has become an asset class in its own right that provides portfolio diversification and a decorrelated driver of absolute returns.”

The ACC/Dechert paper was based on a survey of 60 private credit managers globally, with an estimated combined AUM in private credit of $500 billion. The full paper can be downloaded here.

AIMA is a global alternative investment industry association with 1,840+ corporate members in more than 55 nations. It is the co-founder of the well-known Chartered Alternative Investment Analyst designation, and its manager members collectively manage more than $1.8 trillion in assets worldwide.


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