Developing trends in private debt

Through a turbulent 2020, resiliency across Private Debt portfolios cemented the asset class as an all-weather investment. With the onset of COVID, Private Debt has seen extended hold periods increasing MOIC and yield in all but the most competitive deals, collaboration between sponsors and lenders to support their underlying Portfolio Companies, and attractive risk-reward profiles as funds continue to increase allocation to illiquid debt strategies across the globe.

Over the past two weeks, SuperReturn North America and Private Debt Investor New York featured perspectives on Private Debt from hundreds of GPs and LPs alike in a virtual forum. Panelists across conferences expressed their outlook for the balance of 2020 and early 2021 for the private markets. The outcome of the crisis is still uncertain, yet investors are excited about opportunities to deploy capital on a global scale. We sat down with our industry experts to highlight our top 10 takeaways from the conferences for the immediate future:

1. COVID-19 has created an economy of haves and have nots - competition is strong for critical service providers while industry avoidance for those still challenged by crisis remains high.
2. Lenders with strong relationships throughout the sponsor and intermediary communities believe they have a competitive advantage in this environment, as evidenced by the rebound in their deal pipelines.
3. Technology allows firms to mine information from portfolio companies and third party data to better understand their portfolio, associated risks and the overall market environment to make more informed decisions; this is a competitive advantage during a market dislocation.
4. LPs are finding direct opportunities via their GP relationships and enjoying an attractive risk-reward on those investments.
5. ESG-focused investing continues to be a focus, however, reporting can be challenging.
6. Opportunities proliferate in Europe as the banking community has retrenched even further from lending to the LMM & MM; Strategic capital funds are flowing toward the space.
7. Opportunistic deals are prevalent in the US as the market dislocation continues to present attractive investments for various risk profiles - with active portfolio management and tighter documents a recurring theme.
8. Global economic uncertainty remains prevalent, however collaboration among management teams, sponsors and lenders has worked well for solving liquidity issues and insolvency remains low to date.
9. Many believe the tail for this recessionary period will be longer than that of the GFC due to the systemic impact of continued economic uncertainty and changes in consumer behavior.
10. Economic policy and government support for enterprises severely impacted by COVID-19 remain of particular interest, predominantly in the US with some states seeing a surge in cases coupled with the looming presidential election.

In summary, lenders with access to capital, a strong foundation of relationships and technology supporting their operations are well positioned to take advantage of present and future opportunities within Private Debt. Sentiment across both conferences was that this vintage of investments will continue to be attractive and terms will continue to be favorable for the lender community.

Posted 30 September 2020 by Jocelyn Lewis, Vice President, Head of Commercial Strategy for Private Debt Software Solutions, Americas, S&P Global Market Intelligence

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.