Global private credit market growing rapidly, according to ACC/Deloitte survey
28 July 2016
The global private credit market, an alternative source of financing for small and medium sized enterprises, is flourishing, with institutional capital supporting increased lending in Europe in particular, according to a report by the Alternative Credit Council (ACC), a private credit industry body affiliated with the Alternative Investment Management Association (AIMA), and Deloitte, the business advisory firm.
The private credit market has grown from $440 billion last year, to $560 billion today. The research, Financing the Economy 2016, found that institutional capital is boosting lending in Europe and much of this growth has been driven by demand from European businesses. However, the US still remains the largest private credit market, both in terms of overall assets under management, and new assets raised in 2015.
The research is the second paper to be published by the ACC and Deloitte, and is based on a survey of alternative lenders, representing assets under management totalling $670 billion, of which $170 billion is allocated to private credit strategies.
Stuart Fiertz, the Chairman of the ACC and President of Cheyne Capital, said: "As the recovery from the financial crisis continues, business innovation and demand for credit shows no signs of slowing. Alternative lenders are primed and ready to continue to fill the lending gap, but this is not necessarily at the expense of the traditional lenders. We see a cooperative relationship occurring between banks and alternative asset managers."
Floris Hovingh, Head of Alternative Capital Solutions at Deloitte, said: "In the last couple of years, alternative lending has seen huge growth in Europe and is likely to accelerate over the next 24 months as a result of Brexit. As trade negotiations get underway, alternative lenders could be well positioned to navigate the increased risk in the market and price this accordingly.”
87% of global alternative lenders surveyed prior to the UK’s referendum said that the best lending opportunities are currently in the UK. This is followed by France (62%), Germany (54%), Spain (54%) and the US (50%).
Pension funds were cited by 57% of respondents as the biggest investor category, while a further 30% said pension funds were their second biggest source of capital. Insurance companies, endowments, foundations and sovereign wealth funds were other investor types cited as sources of capital for private debt funds.
The research found that most financing is going to businesses with pre-tax profits of $10 million or more. Most loans are greater than $5 million in size and half are in the $25m-$100m range. In comparison, bond market financing, a common form of non-bank finance for larger corporates, is in the $100m-$300m range.
The research also found that most private credit funds use little or no leverage, have low default rates and are structured in a way to prevent liquidity mismatches, bank-style runs and other financial stability problems. Fund managers said growing demand was partly driven by the flexibility, responsiveness and expertise of alternative lenders.
Notes to editors
Financing the Economy 2016 is based on a survey of alternative lenders. Asset management firms that participated account for assets under management of approximately $670 billion in total. These managers allocate approximately $170 billion to private credit investment strategies, therefore accounting for approximately one third of the total market. The majority of respondents are based in the US (45%) and the UK (34%).
The paper also includes a number of case study examples, some being published for the first time, of alternative credit funds that have supported various sectors of the 'real economy' including education, healthcare, renewable energy, engineering, and telecommunications.
To view the full report, please click here.
About the ACC
The AIMA Alternative Credit Council - a group of senior representatives of alternative asset management firms - was established to provide direction on the developments and trends in the alternative and private credit strategy space, with a view to securing sustainable development of the sector.
The ACC is the sole global trade association representing the interests of the private credit and non-bank bank finance participants in asset management. Its main activities comprise of thought leadership, research, education, high-level advocacy, and policy guidance.
AIMA, the Alternative Investment Management Association, is the global representative of the alternative investment industry, with more than 1,600 corporate members in over 50 countries. AIMA works closely with its members to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes, and sound practice guides.
Providing an extensive global network for its members, AIMA’s primary membership is drawn from the alternative investment industry whose managers pursue a wide range of sophisticated asset management strategies. AIMA’s manager members collectively manage more than $1.5 trillion in assets.
AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists.
For further information, please visit AIMA’s website, www.aima.org.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
Member of Deloitte Touche Tohmatsu Limited.