Press release: Global private credit market focusing on sustainability
Published: 10 November 2021
London, UK and New York, US – 10 November 2021 – According to a new research paper, Financing the Economy, published by the Alternative Credit Council (ACC) in partnership with Allen & Overy, private credit managers are accelerating the integration of ESG into their investment strategies and engagement with businesses on sustainability.
The ACC surveyed 57 private credit managers and investors based across the US, Europe and Asia Pacific that collectively manage more than US$600bn. The research found that 74% already integrate ESG into their investment strategies and consider it to be a core part of their approach to due diligence, borrower engagement and investor reporting.
Beyond investing, the survey found that managers are a growing source of guidance and technical support on sustainability issues for many SMEs and mid-market businesses. Almost half of private credit managers see this service as their biggest value-add on ESG issues, and nearly a third see their ability to influence ESG outcomes as their biggest strength.
A third of firms reported offering ESG-focused private credit products that incentivise businesses to become more sustainable, for example by linking the interest rate to ESG-related criteria. Such products are likely to become more prevalent, with a further 28% of respondents planning to make loans with ESG-linked financial incentives in the future.
The research reveals that private credit managers provided an estimated US$196bn of credit to the economy during 2020, a 74% increase on the US$113bn respondents predicted they would invest when surveyed last year.
The main recipients of credit continue to be SMEs and mid-market businesses, with 74% of respondents’ most common loan size being below US$100m. The research also finds that a significant part of the market is now focusing on larger businesses, with 26% of respondents describing their most common loan size as greater than US$100m, up from 10% last year.
Jiří Krόl, Global Head of the Alternative Credit Council, commented: “It is encouraging to see how quickly the industry adapted and deepened its approach to ESG integration. There is broad agreement that we are still in the early stages of development when it comes to methodologies, loan documentation and engagement practices. It is also clear that while regulation can be helpful in some ways, the real driver of change is the industry’s desire to innovate and deliver for its borrowers, investors and society at large.”
Jake Mincemoyer, Head of US Leveraged Finance at Allen & Overy, added: “Over the last decade, private credit has developed into a global and highly-diversified market, in excess of US$1tn. With the increasing volume of capital being provided to SMEs and middle-market businesses and the growing size and frequency of mega-deals in private debt, managers have also seen greater focus on ESG principles across the global private credit market. While some regions have seen broader adoption of these changes than others, there is no doubt that ESG principles will remain a growing focus over the coming years.”
The paper also includes contributions from leading private credit managers and investors from the following firms:
- ADM Capital
- AIG First Principles
- Allianz Global Investors
- Arcmont Asset Management
- Ares Management
- BlackRock Alternative Investors
- Cheyne Capital
- CVC Credit
- Hayfin Capital Management
- Newmarket Capital
- Oak Hill Advisors
- Teacher Retirement System of Texas
- Tikehau Capital
- Tor Investment Management
Drew Nicol, AIMA
Devin Shorey, Prosek Partners
Pro-a&[email protected], 302-593-3197
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 200 members that manage over US$450bn 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.
Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry. The ACC seeks to explain the value of private credit by highlighting the sector's wider economic and financial stability benefits.
Allen & Overy is a global law firm that helps the world’s leading businesses to grow, innovate and thrive. For almost a century, we have built a reputation for our commitment to think ahead and bring original solutions to our clients’ most complex legal and commercial challenges.
We cover the full spectrum of alternative investment, upstream and downstream and across all asset classes, from the structuring and establishment of managers and their funds, to the investments that they carry out. We have dedicated teams in over 40 offices around the world, providing almost complete geographic coverage for our Alternative Investment Manager clients.
We act for all types of funds, managers and investors, including global, industry leading managers, younger managers and start-ups/spin-offs, sovereign wealth funds, pension funds and insurance companies, and have deep sector expertise in each of the key asset classes: private equity, real estate, infrastructure, distressed and credit. We help design and implement some of the most complex and innovative cross-border alternative investment structures, and the deals (domestic and international) that are done via those structures, whether leveraged finance, fund finance, CLOs, structured finance and securitisation, and corporate transactions. In addition our regulatory, compliance, employment and tax teams support our clients’ transactional and operational requirements.
At a time of significant market change in the legal industry, Allen & Overy is determined to continue leading the market as we have done throughout our 90-year history. The firm will do this by ensuring we always challenge ourselves to bring new and original ways of thinking to the complex legal challenges our clients face.
The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than US$2tn 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 200 members that manage US$450bn 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).