Private credit managers to provide more than USD100bn of financing during 2020, says ACC
Private credit managers will provide more than USD100 billion of financing during 2020 as economic uncertainty and low interest rates are reducing the attractiveness of traditional fixed income assets, according to research published by the Alternative Credit Council and Allen & Overy.
The ACC’s 6th 'Financing the Economy' research paper showed that 88 percent of firms expect to continue raising capital for their existing strategies, and 98 per cent of businesses plan to raise capital for some form of private credit strategy in 2021.
According to Sanjeev Dhuna, a London-based Allen & Overy partner and head of the firm’s direct lending practice, direct lenders are increasingly being considered by borrowers and sponsors alongside underwritten and bank club financings.
“The direct lenders offer speed of execution and certainty of pricing, and in recent months we have seen these lenders play in the structured financing market, offering liquidity for delayed exits in order to return cash to investors,” he commented and added: “the direct lenders are a staple part of the mid-market financing scene and they have an increased presence in the large cap market.”
The paper, which surveyed 49 firms with an estimated private credit AuM of USD431 billion, notes that Covid-19 will highlight differences in origination, documentation standards and risk management within the sector.
Performing loans in the SME and mid-market are expected to be the biggest opportunity to deploy capital in 2021, the report revealed.
“Private credit provision will drive the recovery in the mid-market sector as traditional sources of finance will continue to retrench. So although it may be still too soon to tell, the early signs point to the industry passing an important structural stress test, and doing so without the levels of government support provided in the public markets,” said Jiří Krόl, global head of the Alternative Credit Council.