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Direct lending funds drive private debt fundraising in Q3 2015

Preqin’s Q3 private debt report reveals that direct lending funds in market continue to be the largest part of the private debt market, accounting for USD9 billion of the USD19.3 billion raised by private debt funds closed in the quarter.

Half of the 10 largest funds closed in Q3 were direct lending funds, and 42 per cent of private debt funds currently in market follow this strategy. This class also accounted for the highest number of funds closed (11) and the greatest aggregate capital raised (USD9.0 billion). With over two-thirds (68 per cent) of LPs targeting direct lending over the next year, it looks likely to remain the most sought after strategy for investors in private debt.
Twenty-seven private debt funds held a final close in Q3, securing an aggregate USD19.3 billion in commitments. This is an increase from the USD17.8 billion raised in Q2, but has yet to match fundraising levels seen at the start of the year.
For the first time this year, Europe-focused funds were the region to raise the most capital, securing USD10.3 billion in investor commitments. North America-focused fundraising fell 32 per cent to USD7.9 billion in Q3, down from USD11.6 billion in the previous quarter.
At the start of Q4, there were 224 private debt funds in market, targeting a combined USD117 billion in capital. 116 North America-focused funds are targeting the most capital (USD65.8 billion), while 67 Europe-focused funds are targeting USD37.4 billion, less than at the start of Q3.
Forty-two per cent of private debt funds currently in market have been on the road for a year or less, in line with previous quarters. However, 30 per cent have been in market for more than two years, up from 27 per cent at the start of Q3.
Dry powder levels at the end of Q3 reached a record USD191 billion, up 37 per cent from December 2014. European dry powder has increased by 66 per cent in 2015 so far, and now stands at USD61 billion, while North American dry powder stands at USD118 billion.

“The private debt industry continues to flourish in North America and Europe, once again supported by strong direct lending fundraising figures,” says Ryan Flanders, Head of Private Debt Products at Preqin. “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 USD117 billion. 
Overall, Q3 fundraising figures have increased from the totals seen in Q2, although they have yet to match the strong fundraisings seen at the start of the year. However, with several large funds currently in market, private debt fundraising is likely to remain strong in the coming months.” 

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