Fuse Blog

Market Headwinds and Shifting Perceptions Towards Private Debt

  • In the unlisted closed-end fund (CEF) space, private credit/income strategies have exploded in recent years, increasing from 9 funds with $4.4 billion in 2014 to 76 funds with nearly $52.8 billion in 2023, and 20+ additional funds in registration as of 1Q24.
  • Preqin projects global private debt assets, including unlisted CEFs, institutional private debt funds, and other vehicles, to grow to $2.8 trillion in 2028.
  • However, recent news may indicate a more cautious attitude emerging towards the asset class:
    • In a paper released in March, economists with the NBER argue that direct lending strategies as a whole produce little alpha over broad market benchmarks once fees are paid to management. Although some disagree with the conclusions, the NBER study is a sign of increased wariness.
    • In a recent FundFire article, several investment professionals expressed concern that lower expected returns may no longer justify the liquidity constraints and lack of diversification.
    • Preqin reported that private credit fundraising weakened in 2023 compared to 2022, with many pension funds scaling back commitments due to concerns that high interest rates may cause borrowers to struggle.
  • In the wake of its success in recent years, and with rising rates, investors’ perception of private credit may be becoming more complicated.

Unlisted Closed-End Fund Private Debt/Income AUM and Funds Launched, 2014-2023

Blog 4.10.24

Source: SEC Filings, FUSE Research analysis