Direct lending has been ranked as the most popular among private debt fund strategies, according to research among European institutional investors conducted by fiduciary services provider Elian.
Of those private debt fund strategies most favoured amongst investors over the next 12 to 24 months, direct lending took poll position with 55 per cent of the vote, as fund houses increasingly enter a space traditionally occupied by banks.
Ranked second was mezzanine finance (48 per cent), shortly followed by distressed debt (42 per cent).
The response from investors was in spite of those challenges currently facing, and expected to impact the European direct lending market. According to investors, the biggest obstacles to growth are regulation (60 per cent), the ability to fund raise (37 per cent), maintaining a low cost of capital over the long-term versus traditional banks (35 per cent), a resurgence in bank lending (32 per cent) and performance (27 per cent).
Charles Le Cornu, head of private equity at Elian, says: “We have seen fervent growth in the alternative funding market over the last two years and private debt funds within it. This has been driven largely by the creation of the Capital Markets Union, charged with mobilising capital in Europe and which has acted as fundamental catalyst for the continued strength in alternative lending platforms.
“A secondary factor has been the long term trend of ongoing bank disintermediation across Europe. Fund managers have been drawn to the direct lending space following regulations introduced after the financial crisis that have made it harder for banks to provide financing to businesses. As European banks shed assets this trend will only continue, increasing the demand for direct lending.”
