Private Debt: No stopping the Megatrend
Private debt has proven itself in recent years to be a highly resilient, valuable asset class for LPs’ investment portfolios and there are no signs that the party will be coming to an end anytime soon. Overall industry AUM has grown to $1.5 trillion and is forecast to reach $2 trillion by 2027. This is now a mainstream alternative asset class; one that continues to grow and mature as a bona fide megatrend. Indeed, with the opportunity to earn double-digit returns on first-lien debt, industry leaders including Stephen A. Schwarzman believe this is a golden age for the asset class. There are various factors driving this megatrend. Some of these include, at a very high level:
• Diversification
• Yield enhancement
• Illiquidity premium
• Macro tailwinds
• Income generation
Private debt has evolved to become a highly diverse asset class. Since 2007, the market has grown from $280 billion in assets under management to $1.5 trillion in 2022. While direct lending to corporates, real estate, and infrastructure has been well established for some years, specialty finance has also been growing in areas such as aviation finance, litigation finance, NAV lending, IP & royalties, and venture debt. Indeed, KKR estimates that asset-backed finance is a $5 trillion market and growing.