Debt funds toast blockbuster year

European private debt funds had a blockbuster 2015, raising a record amount of cash and completing a record number of deals – and that bonanza looks set to continue into 2016, according to two new reports.


Debt funds have raised a record amount of cash

Debt funds were increasingly active on the deals front in 2015, with the number of transactions completed in Europe hitting 242, a 9% rise on the 222 deals completed the previous year, according to the Deloitte Alternative Lender Deal Tracker, which was published on March 17.

Deloitte found that in the final quarter of 2015, there were 63 deals in the UK and mainland Europe, up from 61 deals for the same period of 2014.

The rise in dealmaking came as debt funds focused on lending directly to businesses in Europe raised an all-time high of $ 18.8 billion in capital in 2015, a substantial rise on the $ 12.7 billion raised by such funds in 2014, according to a Preqin Private Debt Report, also published on March 17.

Both Preqin and Deloitte predicting that such funds will continue their fundraising and deal success over the coming year.

The three largest funds are Hayfin’s €2.25 billion direct lending fund, Ares Capital’s €2 billion third European fund and Alcentra’s €2 billion European fund. Investors are planning to increase allocations to the asset class in 2016, with 71% of respondents to a Preqin survey of institutional investors saying that they intended to make a private debt commitment in 2016.

Deloitte predicted that volatility in the debt markets would see banks and institutional lenders remain cautious about lending on deals, providing more opportunities for direct lenders.

Floris Hovingh, head of alternative lender coverage at Deloitte, said: “Current market volatility creates an unprecedented opportunity for newly set up direct lending funds with locked-in capital. Borrowers are looking for certainty of pricing, which is proving difficult to find in the current market environment.”

The private debt market in Europe has had explosive growth over the past five years, driven partly by the reluctance of banks to lend to firms after the financial crisis. Debt funds are also increasingly pushing into larger deals.

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