The private credit market is on track to hit $1 trillion in assets by 2020
Businesses in need of a war chest are now going to private equity firms or subscribing to hedge funds instead of seeking help from banks.
A global survey by the Alternative Credit Council highlighted the shift from banks as a major source of financing following the financial crisis, as lenders still suffer from bad loans.
In fact, the survey revealed that the industry has already grown 14-fold since 2000. Last year, private equity firms and hedge funds recorded over US$600 billion under management.
Based on this growth rate, the industry is on track to hit US$1 trillion in assets by the end of the decade.
Alternative Investment Management Association CEO Jack Inglis said small-to-medium sized firms remain a dominant feature of the lending market, with around a third of total committed capital being lent to SMEs and the mid-market. Meanwhile, large businesses receive 22% of all lending.
"Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fuelling its expansion into new markets," he said.
Whilst most of the private equity activity is concentrated in the United States, the study said Germany, France, and Canada have the biggest potential for such type of financing in the next three years.
A Reuters report quoted Willis Towers Watson debt expert Chris Redmond as commenting, "The pullback by banks has created a vacuum which non-banks have filled."
Redmond said that the interest rates charged by these providers could reach as high as 8.5% annually. Still, this has attracted investors who are struggling to find returns elsewhere.
“We are concerned about some things going on in credit markets but private debt, as it stands, remains interesting and safe,” he told Reuters.
For more of Wealth Professional's latest industry news, click here.
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More firms rushing into promising private debt space
Private REITs hold considerable cachet for investors
A global survey by the Alternative Credit Council highlighted the shift from banks as a major source of financing following the financial crisis, as lenders still suffer from bad loans.
In fact, the survey revealed that the industry has already grown 14-fold since 2000. Last year, private equity firms and hedge funds recorded over US$600 billion under management.
Based on this growth rate, the industry is on track to hit US$1 trillion in assets by the end of the decade.
Alternative Investment Management Association CEO Jack Inglis said small-to-medium sized firms remain a dominant feature of the lending market, with around a third of total committed capital being lent to SMEs and the mid-market. Meanwhile, large businesses receive 22% of all lending.
"Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fuelling its expansion into new markets," he said.
Whilst most of the private equity activity is concentrated in the United States, the study said Germany, France, and Canada have the biggest potential for such type of financing in the next three years.
A Reuters report quoted Willis Towers Watson debt expert Chris Redmond as commenting, "The pullback by banks has created a vacuum which non-banks have filled."
Redmond said that the interest rates charged by these providers could reach as high as 8.5% annually. Still, this has attracted investors who are struggling to find returns elsewhere.
“We are concerned about some things going on in credit markets but private debt, as it stands, remains interesting and safe,” he told Reuters.
For more of Wealth Professional's latest industry news, click here.
Related stories:
More firms rushing into promising private debt space
Private REITs hold considerable cachet for investors
