Press Release: Private credit managers on track to provide businesses with more than $100bn of fresh financing
Published: 24 November 2020
Private credit managers on track to provide businesses with more than $100bn of fresh financing
- Sector has proactively supported COVID-affected borrowers during 2020
- Private credit managers will continue targeting SME and mid-market businesses next year
- Pandemic fuelling investor appetite for income generating assets and diversification
London, Tuesday 24 November 2020: Private credit managers will provide borrowers with more than $100bn of fresh financing during 2020, according to new research published by the Alternative Credit Council (ACC) and Allen & Overy LLP (A&O).
The ACC’s 6th annual Financing the Economy research paper shows that private credit managers have provided vital support to borrowers during 2020. As well as new lending, private credit managers have also supported COVID-affected businesses with flexible finance solutions and pragmatic approaches towards forbearance or recapitalisation.
The annual global survey of 49 firms with an estimated private credit AuM of $431bn notes that COVID-19 will highlight differences in origination, documentation standards and risk management within the sector. Existing exposure to cyclical or COVID-affected sectors is also affecting a private credit manager’s ability to take advantage of investment opportunities during the current downturn. These factors are likely to drive dispersion of performance within the sector during 2020 and 2021.
Data from the report shows that 88% of firms expect to continue raising capital for their existing strategies, and 98% of respondents plan to raise capital for some form of private credit strategy next year. This capital will particularly benefit SMEs, mid-market and unlisted businesses who are underserved by traditional lenders or were unable to access government liquidity schemes.
The report highlights how investors and private credit managers are positioning themselves in anticipation of borrowers’ changing finance needs in 2021. Performing loans in the SME and mid-market are expected to be the biggest opportunity to deploy capital in 2021, with the sector also anticipating greater investment in liquidity/bridge finance or special situations lending.
Investor appetite for private credit remains undiminished. Ongoing economic uncertainty and the low interest rate environment are reducing the appeal of traditional fixed income assets. This is driving allocators towards private credit assets that can generate income, while also offering them diversification and a hedge against ongoing economic disruption.
Jiří Krόl, Global Head of the Alternative Credit Council commented: “Private credit managers have stepped up and proved their value in 2020 by continuing to support existing businesses and lend to new projects, despite the substantial disruption in the economy. Private credit provision will drive the recovery in the mid-market sector as traditional sources of finance will continue to retrench. So although it may be still too soon to tell, the early signs point to the industry passing an important structural stress test, and doing so without the levels of government support provided in the public markets.”
Sanjeev Dhuna, a London-based Allen & Overy partner and head of the firm’s direct lending practice, said: “We are increasingly seeing direct lenders being considered by borrowers and sponsors alongside underwritten and bank club financings. The direct lenders offer speed of execution and certainty of pricing, and in recent months we have seen these lenders play in the structured financing market, offering liquidity for delayed exits in order to return cash to investors. The direct lenders are a staple part of the mid-market financing scene and they have an increased presence in the large cap market.”
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Allen & Overy [email protected]
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The Alternative Credit Council (ACC) is the global body representing asset management firms in the private credit and direct lending space. It currently represents over 170 members that manage $400bn of private credit assets. The ACC is an affiliate of AIMA (the Alternative Investment Management Association). It is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They finance mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure and the trade and receivables business. The ACC provides guidance on policy and regulatory matters, supports wider advocacy and educational efforts and produces industry research to strengthen the sector's sustainability and economic and financial benefits. Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry. The ACC seeks to explain the value of private credit by highlighting the sector's wider economic and financial stability benefits.
The Alternative Investment Management Association (AIMA) works to grow the alternative investment industry to benefit the world’s economy, savers and investors. To achieve this, we strengthen the links between fund managers, investors, regulators and industry service providers. Our thirty-year heritage means AIMA understands its members’ priorities, who access our resources to grow their businesses, create lasting connections using our events and benefit from the effect our advocacy work has on the environment in which they must operate. Since our formation, the industry has grown by 60 times. AIMA’s capacity to deliver local support across the globe has made us connected, knowledgeable and influential, and means our 2,000 members are now based in over 60 countries.
Allen & Overy is a global law firm that helps the world’s leading businesses to grow, innovate and thrive. For almost a century, we have built a reputation for our commitment to think ahead and bring original solutions to our clients’ most complex legal and commercial challenges. We have approximately 5,500 people, including some 550 partners, working in more than 40 offices worldwide.