The private debt fundraising market saw 26 funds reach a final close in the second quarter of 2017, securing a total of USD16 billion in investor commitments.
Preqin expects these figures to rise by around 10 per cent as further information becomes available, putting the quarter behind the strong activity seen in the first quarter of the year. However, private debt funds marked a record fundraising quarter in Q4 2016, and this momentum seems to have been somewhat sustained through the first half of the year. In total, private debt funds have now raised over USD100 billion in the past four quarters.
Activity in Q2 was primarily driven by North America-focused funds. Sixteen funds closed focused on the region, raising an aggregate USD13 billion. This is similar to the previous quarter, although it is dwarfed by the USD44 billion secured for North America- focused funds in Q4 2016. By contrast, just five Europe-focused funds closed in Q2, raising a combined USD2 billion, down from USD11 billion raised the previous quarter.
Direct lending funds closed in Q2 raised USD5 billion, less than half the USD14 billion they raised the previous quarter, while three distressed debt funds secured an aggregate USD7 billion, while nine mezzanine funds raised just USD2 billion.
The largest fund closed in Q2 was the USD4 billion Cerberus Institutional Partners VI distressed vehicle. After falling across the course of 2016, dry powder held by private debt funds is rising again, reaching USD208 billion as of June.
At the start of July there are 311 private debt funds in market, seeking a total of USD145 billion from investors.
“It is very encouraging to see private debt fundraising momentum being sustained across the first half of 2017,” says Ryan Flanders (pictured), Head of Private Debt Products at Preqin. “Following previous gluts of fundraising, as in early 2015, we noticed a distinct pause between fundraising cycles as the industry took a breath. In this cycle, following record levels of capital secured in Q4 2016, we have seen activity stay strong in the first half of 2017. This is indicative of an industry that has now expanded beyond a critical mass, and may mark the next stage of development in the asset class.
On the other hand, the bulk of activity in the quarter was focused on distressed debt funds targeting North America, perhaps one of the most well-established elements of the private debt industry. Growth areas such as Asia-focused vehicles or direct lending funds have yet to show the kind of sustained activity that is beginning to mark the industry as a whole. If private debt is to keep expanding, these growth areas will need to show more consistent fundraising activity.”
