Asset owners want to capitalize on the increase in private lending that they expect over the next 12 months — and they want a piece of that growth.
According to a new survey from Coller Capital, 44 percent of the 110 allocators interviewed by Coller said they planned to increase allocations to private credit in the next year. Asset owners in the Asia Pacific region are the keenest on the asset class — 72 percent of those who responded said they plan to increase their exposure to private credit in the coming year.
“Private credit has solidified its position within private market portfolios,” said Jeremy Coller, chief investment officer at the firm, in a statement. “In current conditions, private credit is one of the most compelling sources of growth for investors when deployed well.”
The asset class has been topic du jour for asset owners in search of private equity-like returns with lower risk. The private credit market is booming thanks to a higher interest rate environment and challenging equity markets.
Private credit managers, flush with capital, are expected to take up a larger share of traditional lending activity over the next two years. Seventy-six percent of investors surveyed said they expect private credit firms to lend at a more rapid clip than banks in the next two years.
According to the survey, nearly half of investors (45 percent) believe that higher interest rates will bolster the returns in their private credit portfolio.
“This may demonstrate both the ability of private credit managers to continue deploying and generating returns in constrained environments, more so than other lenders, as well as showing the benefits felt by those invested in floating rate-linked lending strategies,” according to Coller’s report on the survey findings.
Private credit will play a key role in helping these allocators achieve the expected alternative asset class returns over the next few years. According to the survey, nearly 60 percent of the responding limited partners expect to earn between 11 and 15 percent across their private equity portfolios over the next three to five years.
Allocators say that their general partners are even more optimistic about returns — almost too much so. Seventy-five percent of those surveyed said their managers are too optimistic about returns for the coming years.
Perhaps with private credit bolstering their portfolios, these managers will hit the return targets they desire — but only time will tell.
