Private Debt Investors Increasingly Drawn To Special Situations Deals

Private debt investors are increasingly targeting higher risk deals, according to research published by alternative asset market intelligence provider Preqin.  

In its latest quarterly Private Debt Market Update, Preqin estimates that there are more than 3,200 active private debt investors globally, and within that community the appetite for exposure to deals involving distressed debt and special situations lending is on the rise.  

Of those two areas, distressed debt is the most popular. In the first quarter of 2018, 52% of investors said they were targeting this kind of investment, compared with 46% in the same period a year earlier.

Special Situations Lending Growing Fast

However, special situations saw the greatest rise in investor interest. In the first three months of 2017, just 27% of investors were targeting special situations.This year that figure rose to 37%.

According to Prequin’s analysis, the shift in sentiment towards higher risk lending strategies may reflect investor perceptions of the current state of the market cycle. 45% of those polled said the asset pricing in the public markets is currently too high and many fet that a correction was due.

Commenting on the findings, Tom Carr, head of Private Debt Products at Preqin, said: “Investors across different asset classes increasingly feel that public markets are at or close to a peak, and may be due for a correction. In this context, the appeal of higher-risk strategies like distressed debt and special situations is growing.”

Broken down in terms of geography, Preqin found that interest in North America and Asia Pacific was on the rise, but it was Europe that exhibited the strongest growth. In the first quarter of this year, 60% of investors were looking for opportunities in Europe, compared with just 41% in the first quarter of 2017.  

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