Defined Benefit
Insurance Assets
Nonprofit

Investor Appetite for Private Credit Continues, but Strategies of Interest Shift

Investor Appetite for Private Credit Continues, but Strategies of Interest Shift
clock
1 min 22 sec

During 4Q22, clients took a new look at upper-middle-market direct lending as all-in spreads have widened by over 400 bps and lenders are able to get tighter terms. Strong deal volume was driven partially by a shift from public to private market debt financings in the recent market environment.

  • As economic headwinds are expected to create stress on over-levered companies, there is a renewed interest in stressed and distressed investment opportunities.
  • Demand continued to be strong for less-competitive areas of private credit with high barriers to entry and attractive risk/reward opportunities such as specialty finance, non-sponsor, lower-middle-market, and opportunistic lending.
  • LPs are seeking alternative structures designed to streamline the investment process while improving underlying liquidity. A number of GPs are launching evergreen structures and private, non-tradeable business development companies as a response to LP interest.
  • As interest rates declined after the GFC, private credit attracted increased interest from institutional investors.
private credit
Private Credit Fundraising
  • Private credit fundraising was robust leading into the COVID dislocation, with a particular focus on direct lending, asset-based lending, and distressed strategies.
  • In the current rising rate environment, a renewed focus has been placed on relative value, downside protection, and managers’ internal workout resources.
  • There is also interest in strategies with strong collateral protection such as asset-based lending as well as capital solutions and distressed strategies.
  • Larger sponsor-backed lending is seeing a new focus due to the disintermediation of high yield/broadly syndicated loans by private debt.
  • Private credit performance varies across sub-asset class and underlying return drivers. On average, the asset class has generated net IRRs of 8% to 10% for trailing periods ended Sept. 30, 2022. Higher-risk strategies performed better than lower-risk strategies.
3Q22 Pooled Horizon Net IRRs by Strategy

Disclosures

The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to any affiliate firms, or post on internal websites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Private Markets

Private Credit Managers Outperform Leveraged Loans

Daniel Brown
Callan experts analyze private credit performance in 3Q24.
Public Markets

Stellar Markets Across Asset Classes

Kyle Fekete
Callan expert assesses the global markets in 3Q24 and the outlook heading into the election.
Private Markets

Nonprofits: Same Mission, but New Approach to Allocations

Tony Lissuzzo
Callan expert discusses changes in nonprofit allocation trends over the last 20 years.
Private Markets

Gains Outpace Leveraged Loans Over Time; Spreads Contract

Constantine Braswell
Callan experts analyzes private credit activity in 2Q24.
Public Markets

Gains for Stocks Mask Wide Disparities; Little to No Change for Bonds

Kristin Bradbury
Callan expert analyzes the global stock and bond markets in 2Q24.
Private Markets

Private Credit Gained in 4Q23 but Lagged High Yield Benchmark

Constantine Braswell
Callan expert analyzes private credit activity in 1Q24.
Public Markets

Stocks Continue Rally; Bond Returns Fall Amid Rate Cut Uncertainty

Kristin Bradbury
Callan expert analyzes the performance of global markets in 1Q24 and the outlook for the year.
Private Markets

Private Credit Performance Tops Leveraged Loan Index Over Long Time Periods

Alternatives Consulting Group
An update on private credit performance in 4Q23
Public Markets

Stocks Near a Record High, and Bonds Reverse Course

Kristin Bradbury
Kristin Bradbury analyzes global stock and bond markets in 4Q23.
Private Markets

Private Credit Returns Exceed Those of Leveraged Loans

Roxanne Quinn
Our analysis of 3Q23 private credit activity.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.