Is there sufficient demand for private assets to meet supply?

Investment Week

And there is no clearer sign of this than its fondness for launching new funds. Every few years a new hot topic arrives – whether it be liability-driven investment, smart beta or ESG – which piques the interest of investment companies. The upshot is the market is then flooded with new funds all vying for the attention of end-investors. 

This time around that hot topic appears to be private debt, essentially credit extended by non-bank lenders, with asset managers falling over themselves to bring new products to the market.

Since the onset of the global financial crisis the private debt market has mushroomed. As banks curtailed their lending during the worst of the crisis in order to try and mend their own balance sheets, a vacuum was created that non-bank lenders neatly occupied. 

The result has been sizable growth of the private debt market, with assets jumping from less than $45bn (£35.6bn) at the end of 2000 to more than $1.5trn, according to the latest figures from data provider Preqin.

This rise has not been lost on asset managers. In the last few weeks alone a number of investment companies have launched private debt funds, including Goldman Sachs Asset Management, M&G, Nordea Asset Management and Legal & General Investment Management (LGIM), with many more sitting on the sidelines waiting to press the button on their own launches.

Matching supply with demand

The big question, however, is whether there is enough demand from end-investors to match the supply? According to one senior executive at a consultancy that advises pension funds on their investments, who asked to remain anonymous, the answer is no.

“It is hard to say but, no, I do not think so,” they said. “Yes, private debt offers something different, and it can be a good diversifier, but it is quite difficult to explain.”

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Robin Powell, a campaigner for what he calls positive change in global investing and the author of the blog, The Evidence-Based Investor, is more forthright. 

“Asset managers will sell whatever they can, and particularly products that generate high fees. The fashion for private debt funds is just another example of this.

“As so often happens, it is primarily the industry that is stoking demand for private credit funds rather than investors. The vast majority of investors do not understand what private debt is, let alone

The full article is available here. This article was published at Investment Week.