Selected quotes from the piece are below and the piece can be found on Debtwire’s web page – www.debtwire.com
(2014 capital raise volumes show a retrenchment from recent highs…)
That’s in part because limited partners have already filled up on the space over the last several years, said Jeff Davis, Partner, at fund placement agency Eaton Partners.
Still, the recent cooling in fundraise activity is likely to be temporary, said Davis. Over the longer term, “private credit funds will continue to proliferate given the void left by banks in lending to small and mid-market companies and distaste for equity dilution,” he said. On the distressed private equity side a rebound is expected because “leverage is rising, and good companies with bad balance sheets” are abundant, he continued.
“In 2012 the global financial crisis was coming to an end, and so there were a lot of bodies on the side of the road and lot of damage, so investors thought the distressed funds would sort a lot of it out,” said Davis.
Back in 2011, many private credit funds promised private equity-style gross IRRs, in the 20%-plus area, Davis said. Nowadays some credit funds are offering gross IRRs of only 6%-10%, and are having a hard time drumming up investors on the basis of such middling returns, he added.
Unless gross IRRs for the credit funds are in the double digits, LPs tend to gravitate toward the more familiar fixed income funds since the latter are often perceived as less risky, Davis continued.
Private credit funds currently raising capital are promising to hit anywhere from 6% to over 15% gross unlevered IRR levels, added Davis. Debt funds often use leverage to juice their returns, Davis noted. The wide range of potential returns is due to the different levels in the capital structure that funds seek to invest in, he added.Back to News