The private debt market is highly varied and diverse, featuring a wide range of strategies beyond direct lending, infrastructure, and real estate, offering a wealth of investment opportunities for those seeking diverse options. As of September 2023, the global private debt market has achieved significant growth, reaching an estimated $1.7 trillion. Despite this impressive expansion, private debt constitutes a relatively small portion of the global debt market, which is valued at approximately $315 trillion, representing just 0.5% of the total. This growth reflects increasing investor interest in private debt for its potential to offer higher yields and diversification, though it remains a niche compared to the broader debt market.
Key strategies include direct lending to SMEs, distressed debt buying, mezzanine debt with equity conversion rights, and special situations addressing specific events. In 2023, mezzanine financing gained popularity, while refinancing increased significantly, indicating a shift from leveraged buyouts. More recently private debt is increasingly overlapping with syndicated markets while unlisted Business Development Companies (BDCs) are expanding. Investors face a dynamic landscape characterized by diverse strategies, regional growth, and structural changes.
Indeed, the space is far more varied than traditional private lending, real estate and infrastructure debt. A recent presentation by global investment consultancy NEPC highlighted this point, showing a number of subsegments in a “spectrum of debt”
Niche alone includes 17 categories of debt from receivables factoring, aviation and shipping financing to private equity portfolio finance.
But according to industry data provider PitchBook, nearly 60% of all capital raised for private debt fund vintages between 2018 and 2023 went intro just two areas, collateralized loan obligations and direct lending, often to the largest existing firms. The remaining segments, mezzanine, infrastructure, venture and more – some of them significant in their own right – shared the remaining 40%.
In our custom screening and manager research over the last few months, we’ve been intrigued with the success of mid-sized managers in the direct lending space, many building portfolios that deliberately do not overlap with the large existing GPs, in part because they can – they can evaluate at smaller debt deals, and in part to be diversifying – giving LPs broader exposures and more diversification. We’ve also seen interesting activity in the thematic spaces and for BDCs.
The SAVAS Capital Marketplace team specializes in the analysis, construction and portfolio management of high-performing managers in various asset classes. Follow us for additional insights on Secondaries, Private Equity, Infrastructure and Private Credit.