Direct lending funds are driving growth in the private debt marketplace, and are the main strategy for private debt fund managers set up since 2008, according to a new report from Preqin, an alternatives data and information provider.
The report said 72% of institutional investors that are active in private debt planned to invest fresh capital in direct lending funds in the next 12 months.
These are often considered a better fit for more conservative investors in the private debt space in that their structure is similar to fixed income investments compared with more private-equity-type methods, such as mezzanine and distressed debt funds.
Preqin reported that 137 private debt funds had closed in 2013, up 46% over 2012, raising an aggregate $77 billion, a fundraising peak.
This year, fundraising has cooled with 69 funds having raised a total of $37 billion so far, Preqin said. However, funds on the road have targeted $101 billion, highlighting the market’s capacity for significant growth in 2015.
“The increase in investor preference for exposure to direct lending funds is reflected in the amount of vehicles raised in recent years,” Preqin’s head of private debt products, Ryan Flanders, said in a statement.