Private debt poised for 2017 allocation hike: survey

Results also showed that public pension funds are the most diversified LPs. 

In another testament to private debt’s growing acceptance, a survey by eVestment shows private market investors plan to up their allocations to private credit this year at a much higher rate than other alternative asset classes.

The Atlanta-based firm, a hub that connects limited partners and general partners, reported investors and consultants expect a 17.4 percent increase in private debt compared to a 3.8 percent in private equity and a 3.7 percent increase in infrastructure. Allocations to private equity real estate and venture capital were expected to fall 6.2 percent and 6.7 percent, respectively.

“I think why we’re seeing it is the difficulty of getting good yield,” Graeme Faulds, eVestment’s director of private equity solutions, told Private Debt Investor. “I think private debt is looking more attractive.”

Funds of funds are expected to lead the shift in allocation to private debt with a 37.5 percent increase, while LPs expected a bump of 16.7 percent and consultants are expected to increase 7.7 percent. Faulds said he anticipates the large funds of funds expansion into private credit is indicative of the small amount currently committed.

The fund of funds increase comes at the expense of infrastructure, private equity real estate and venture capital, which are expected to decrease by 3.5 percent, 3.3 percent and 6 percent, respectively.

When it comes to what investors placed a premium on when searching for managers, track record was not the most important factor. Some 96 percent of respondents identified the firm’s investment team as “extremely important”, while 79 percent said the same for the proposed strategy and 77 percent called track record “extremely important”.

Public pension plan investors are the most diversified investors, the survey showed. Those institutions have the largest allocation to private equity at 6.4 percent; private equity real estate at 5.4 percent; and infrastructure at 1.4 percent. The public plans are tied with corporate pension plans for highest private debt allocation at 1.9 percent.

“They’ve probably been familiar with the private markets for longer,” Faulds said. “They’re long-term investors, and of course private markets are a long-term asset class.”

Of those that participated in the survey, 79 percent were based in North America; 15 percent were in the Europe, Middle East and Africa; and 7 percent in other regions. Broken down by type, 60 percent of respondents were LPs, while 23 percent were funds of funds managers and 17 percent were investment consultants.