Twenty-seven private debt funds reached a final close in the third quarter, raising an aggregate $19.3 billion in commitments, according to research by Preqin, the alternatives data provider.
This was an increase from $17.8 billion raised in the second quarter by the same number of funds.
The direct lending strategy class accounted for both the largest amount of capital raised in the July-to-September period, $9 billion, and the highest numbers of funds closed, 11.
“The private debt industry continues to flourish in North America and Europe, once again supported by strong direct lending fundraising figures,” Preqin’s head of private debt products, Ryan Flanders, said in a statement.
“Closing the most funds and raising the greatest amount of capital, direct lending is driving a profitable private debt industry whose funds in market are seeking an aggregate $117 billion.”
Preqin said direct lending was likely to remain private debt investors’ most sought-after strategy, with 68% of LPs polled targeting direct lending over the coming year.
North America saw the highest number of funds closed during the third quarter, with 14 funds securing an aggregate $7.9 billion.
However, Europe-focused funds secured more capital than North America-focused ones, $10.3 billion raised in capital commitments. Preqin said this was the result of the two largest funds to close having a focus on Europe.
Intermediate Capital Group’s Senior Partners II, a direct lending fund, and ICG Europe Fund II, a mezzanine fund, each raised more than $3 billion.
According to the report, five of the 10 largest investors in private debt globally are U.S. pension funds. The private sector TIAA-CREF dwarfs all other investors with a $26 billion allocation.
Four public pension funds allocate between $4.1 billion and $5.2 billion: New York State Teachers’ Retirement System, California Public Employees’ Retirement System, Florida State Board of Administration and New Jersey State Investment Council.
At the start of the fourth quarter, 224 private debt funds were in market, targeting a combined $117 billion in capital. Among these were 116 North America-focused funds seeking $65.8 billion, and 67 Europe-focused funds are aiming for $37.4 billion.
Following are the 10 largest private debt funds currently in the market:
- Oaktree Opportunities Fund Xb (U.S.), distressed debt, $7 billion
- KKR Special Situations Fund II (Europe), distressed debt, $3.5 billion
- Cerberus Institutional Partners VI (U.S.), distressed debt, $3 billion
- Crescent Mezzanine Partners VII (U.S.), mezzanine, $3 billion
- Oaktree Opportunities Fund X (U.S.), distressed debt, $3 billion
- Sankaty Credit Opportunities VI (U.S.), distressed debt, $3 billion
- MHR Institutional Partners IV (U.S.), distressed debt, $2.8 billion
- GSO Energy Select Opportunities Fund (U.S.), distressed debt, $2.5 billion
- Ares Capital Europe III (Europe), direct lending, $2.2 billion
- LCM Credit Opportunities Fund III (Europe), distressed debt, $1.6 billion
Preqin noted that 42% of private debt funds currently in market had been on the road for a year or less, which was in line with previous quarters.
At the same time, 30% had been in market for more than two years, up from 27% at the start of the third quarter.
Dry powder levels at the end of September reached a record $191 billion, up 37% from December 2014.
North American dry powder stood at $118 billion, an increase of 25% from December 2014, while European dry powder increased by 66% to $61 billion.