Investors appear poised to continue private credit allocations, data shows

After increasing their allocations to private credit over the past three years, investors expect the trend to continue, according to new data.

Virtual data room provider SS&C Intralinks surveyed 111 investors, 60% of whom had over $1 billion in assets under management, about their views on debt capital markets. The results showed that these investors are increasing their allocations to the debt market in general, not just private credit. Investors interviewed included family offices, pension funds and insurers, among others.

More than half of respondents said they had increased their private debt allowance in the past three years, and there are likely more to come: 59% of respondents said they plan to increase to their allocation to the asset class again over the next three years. . “We continue to see that we have a lot of customers with a lot of cash or dry powder that they are looking to put to work,” Ken Bisconti, co-director of SS&C Intralinks, said via Zoom. “We are still seeing evidence of pent-up demand due to the slowing of the pandemic, and there is still a thirst for yield in investment opportunities.”

The data shows, however, that it is not just private debt that is in vogue. Portfolio allocations to debt capital markets have grown from an average of 16% at the start of 2021 to an average of 36% this year. And SS&C expects that to continue to grow. Forty-three percent of respondents said they expect to add more debt capital to their portfolios in the coming year.

“What we’re hearing from our customers is that 2021 has helped create relatively ideal conditions for economic growth,” Bisconti said. “The underlying fundamentals are solid. Companies are showing strong profitability. Default rates are low and as such investors continue to favor the debt capital markets.

Investors are divided, however, on how asset valuations will fare in the coming months: 41% said they expect values ​​to rise, while 40% expect them to fall. “If interest rates go up or inflation is drastic, the cost of capital and services goes up, and then it’s more expensive for businesses to get loans,” Bisconti said. “There is certainly some caution with these factors.”

The survey shows that 86% of respondents are either very concerned or concerned about inflation, while 76% are very concerned or concerned about interest rate risks. But in conversations with customers, Bisconti found reason to be optimistic.

“We hear from our clients that we are still in historically low rate environments,” he said. “In the United States, even though the Fed has indicated that there will be rate hikes, they will probably still be low. This encourages businesses and even individuals to turn to debt markets for funding, which is good for investors in the debt capital market.

James V. Hayes