Institutional Asset Manager Newsletter 23.08.24

Private debt dominates

As of June 2024, the private credit market was estimated to be around USD1.5 trillion and is expected to grow to USD2.8 trillion by 2028. This is a significant increase from 2007, when the market had USD280 billion in assets under management, and reflects the huge interest from institutional investors seeking diversification and higher yields.
This week we report that there has been a flurry of activity in the last few months alone, including allocations to private debt from several major UK local authority pension pools, and the AUSD 139 billion Australian pension fund UniSuper.
These are significant mandates and form part of a much wider trend which as we also report this week, reflects the 30 per cent of private debt investors who say they expect the asset class’s performance to increase over the 12 months from June 2024. This compares to the 53 per cent who said the same in June 2023.
These figures are from Preqin’s Investor Outlook H2 2024 which reports that direct lending funds remain the most favoured strategy for investors, with 70 per cent of respondents choosing this approach, making it the most popular strategy for investors since 2021.
Private debt is just one of the private market options offering an alternative to disappointing equity funds.
The bfinance quarterly Manager Intelligence and Market Trends report published this month finds that active equity funds have underperformed in an equity market whose performance has been driven by an increasingly narrow group of stocks.
The report’s author and Head of Investment Content at bfinance, Kathryn Saklatvala, says: "Diversification has been an increasingly pressing priority, both within equity exposures and more broadly across the portfolio where investors have sought ‘defensive diversification’ – illustrated, for example, by a more-than-threefold increase in the volume of hedge fund manager searches from bfinance clients."
Meanwhile, Michael Patterson, Senior Associate, Research Insights at Preqin, says: "Alternatives continue to be a key component of portfolios. The key reasons institutional investors cite for investing in alternative assets are diversification, return enhancement, and reducing portfolio volatility."
Patterson goes on to say that it is not surprising that over the coming year institutions expect to invest more; private debt, private equity, and infrastructure are expected to be the biggest recipients of more capital flowing from investors over the short term.
This will be music to most governments’ ears as they scramble to amass the necessary investment to support the green transition, overhauling ageing transport networks and implementing digital ambitions.

Gill Wadsworth, Editor, Institutional Asset Manager
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