Private Debt Investors Expect More Fundraising, Dealmaking
Private debt fund managers anticipate an increase in dealmaking and fundraising activity in 2024, as banks continue to hold back funds.
According to a survey of 100 private debt funds in the U.K., Europe, and the U.S. conducted by Alvarez & Marsal’s debt advisory group, the sector has a favorable view for the coming year, with more money projected to flow into the private debt market and be deployed.
The survey also revealed that respondents anticipate market liquidity will improve this year, but not at the expense of reduced pricing or higher leverage levels.
The study, based on a five-part questionnaire, using a proprietary net score methodology, tracked sentiment across deal activity, fundraising and pricing.
Private debt funds had scores of 85 and 75 for deal activity and fundraising, respectively, indicating that both increased deployment and new capital are expected to enter the market.
Furthermore, the survey found that LP appetite for private credit funds is increasing. At the same time, private credit funds are gaining market share from banks and are expected to benefit even more from increased M&A activity in 2024, noted Alvarez & Marsal.
When questioned about the projected level of competition in the market in 2024, the funds responded with a high net score of 49, indicating expectations of higher liquidity.
When compared to transaction activity and fundraising scores, the firm said that stronger liquidity levels could be attributed to increased financial power from incumbent players ahead of more new entrants into the market.
Meanwhile, pricing and leverage levels are expected to stay constant despite a competitive market and macroeconomic worries, with net scores of 23 and close to zero, indicating that private debt funds expect modest pressure on terms as dealmaking, fundraising, and liquidity grow.
The net score reflects the percentage of positive responses minus the percentage of negative responses, with unchanged/indifferent responses excluded from the calculation.