Private Debt Fundraising Hit Peak of $77B in 2013

"This shift toward direct lending vehicles is likely due to the market opportunity for lending by nonbank entities in the wake of financial regulation and bank deleveraging, as well as the fund type providing favorable risk/return profiles compared to other similar investments."

Ryan said this continued growth in non-bank lending or alternative credit bodes well for the middle market borrower whose needs for capital traditional banks have not filled.

"Exposure to this evolving asset class may continue to be attractive to institutional investors in a low-yield environment," he said.

"Preqin has witnessed many investors set up dedicated allocations to the asset class, which looks set to continue as private debt grows and becomes more defined throughout 2015."

Other Key Findings

• Fifty-two percent of funds closed so far this year have focused on North America, down from 66% in 2013
• This year, Europe has accounted for its biggest share of overall fundraising, with 33% of capital raised by funds closed so far focused on the continent, compared with 21% in 2013
• Direct lending is the main strategy of 40% of private debt fund managers established since 2008, compared with 36% that are focused on mezzanine investments and the remainder on distressed debt, special situations and venture debt
• Two-thirds of private debt fund managers are based in North America, 24% in Europe and 10% in Asia
• Vintage 2001–2011 direct lending funds have a median net IRR of 8.9%
• While 48% of investors currently allocate to private debt from their private equity allocations, 8% invest from their fixed income portfolios and 9% from a dedicated private debt allocation.

— Check out Private Conservation Impact Investing Growing 26% Annually on ThinkAdvisor.