Prudent private credit funds supporting businesses in a challenging market

A new report finds that private credit funds report continued growth and deployment opportunities in 2022 and expect this to continue in 2023.  Financing the Economy – published by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA), in partnership with Allen & Overy, finds this sentiment underpinned by the following trends:

• Borrowers are prizing certainty of execution and flexibility of terms in the current environment
• Private credit funds continue to expand their lending activity in terms of size, balance sheet positioning and geography
• Increased deal flow despite the slowdown in M&A activity as other liquidity providers retrench
• Floating rate products are proving attractive to investors during this period of rising interest rates

The ACC’s Financing the Economy research draws on data provided by 50+ private credit fund managers, representing an estimated US$800bn private credit assets under management, and interviews with 17 industry leaders.

The research also highlights the impact of inflationary and economic pressures on private credit funds’ lending activity. While private credit lenders grew their lending activity by around 20% in 2021, macroeconomic risks are expected to test the sector’s ability to maintain this growth.

Private credit funds are employing greater selectivity when deploying capital to focus on businesses in non-cyclical sectors, and those with strong cashflows and the ability to retain pricing power. Robust risk management processes are manifesting in tighter lending terms across deal pricing, lower levels of leverage, and tighter covenant protections.

The report shows that more than half of credit fund managers expect senior positions to offer the highest risk-adjusted returns over coming years.

Concerns about economic environment are also seeing greater emphasis amongst investors on due diligence, documentation, and workout capacity, with investors increasingly using these factors to differentiate between different managers and allocate capital.

While market volatility and the denominator effect have affected capital raising during 2022, the report finds that investors continue to develop dedicated private credit allocations, with growing interest in mezzanine and distressed strategies among investors.

Jiří Król, Global Head of the Alternative Credit Council, said: “Private credit lenders have adapted their approach to the new macroeconomic environment this year. What is heartening is that they have continued to extend much-needed capital to businesses at a time when traditional lenders have retrenched.  Their support for growing sectors of the economy makes this investment more vital as businesses deal with the challenges presented by inflation and broader macroeconomic headwinds”.

Hannah Gates, Partner at Allen & Overy, commented: “This report clearly shows that the current economic turbulence seen around the world is putting the stability and flexibility offered by private credit funds in the spotlight. It’s encouraging to see the growth potential expected not only in corporate lending in the UK and US, but across products, strategies and geographies. Despite the more challenging market conditions, the pressure to increase ESG focus remains a top consideration and there is no sign of that abating in the coming 12 months.”

The paper includes contributions from the following leading private credit managers:

• Allianz Global Investors
• Arcmont Asset Management
• Ares Credit Group
• Beach Point Capital
• BlackRock
• Blackstone
• Carlyle
• Cheyne Capital
• CVC Credit Partners
• Hauck Aufhäuser Lampe Privatbank AG / Kapital 1852
• Hayfin
• ICG
• KKR
• MV Credit
• Oak Hill Advisors
• Tikehau Capital

Contact Details:

Drew Nicol, Associate Director of Research and Communications, AIMA
Email: [email protected]

Elizabeth Randall, Senior Media Relations Manager, Allen & Overy
Email: [email protected]          

About the Alternative Credit Council (ACC):

The Alternative Credit Council (ACC) is a global body that represents asset management firms in the private credit and direct lending space. It currently represents 250 members that manage over US$600bn of private credit assets. The ACC is an affiliate of AIMA and is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They provide finance to mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure as well the trade and receivables business. The ACC’s core objectives are to provide guidance on policy and regulatory matters, support wider advocacy and educational efforts and generate industry research with the view to strengthening the sector's sustainability and wider economic and financial benefits. 

About AIMA:

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,100 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than US$2.5 trillion in hedge fund and private credit assets.

AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry.

AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. The ACC currently represents over 250 members that manage US$600 billion of private credit assets globally.  

AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors). 

About Allen & Overy:

Allen & Overy is an international legal practice with approximately 5,650 people, including some 580 partners, working in more than 40 offices worldwide. A current list of Allen & Overy offices is available at allenovery.com/locations. Visit www.allenovery.com.