November 30, 2021

UMB issues industry report on U.S. private debt market

November 30, 2021 | UMB Fund Services

The private debt market has come into its own over the past decade. Once a small and obscure asset class, the market’s meteoric rise has benefited from a low interest rate environment, institutional capital backing and heightened EBITDA valuations across multiple sectors.

Now that the private debt passed its first significant test—having performed better than many observers’ expectations during the pandemic—the question is how much bigger the asset class can get. To explore that question, UMB Fund Services partnered with PitchBook to produce an industry brief.

This report aims to highlight the private debt market through multiple lenses, including fundraising, fund sizes, fund types, and geographical distribution. It also includes a spotlight on venture debt, which became a valuable tool for startups during the pandemic.

Key observations from the industry brief

• The private debt market proved resilient from a credit perspective during the COVID-19 crisis.

• In terms of deal activity, the private debt market had a strong 2020, all things considered. More than $264 billion was borrowed last year, the third-highest mark on record, via 3,455 transactions.

• Institutional investors are making a big push into the asset class. $85.1 billion was raised by private lenders last year, in line with the recent past.

• All told, private debt lenders are in a good position post-COVID. Traditional lenders such as banks have soured on the market, having arguably overcorrected in the early innings of the pandemic as they contracted their lending requirements. Private lenders have proven more flexible, particularly for sponsored deals, and stand to benefit from a strong recovery in the PE market.

• As a result of COVID-19, there has been a pronounced uptick in credit special situations funds. Through H1 2021, credit special situations funds pulled in 22% of all private debt fundraising, easily the highest percentage the strategy has ever seen.

• Venture debt, an often-maligned asset class, had a record year in 2020 and earned a renewed appreciation for the value it provides to the venture ecosystem.

• The capital of the U.S. private debt industry is New York. Since 2012, the mid-Atlantic region has accumulated about half of all private debt fundraising in any given year. In 2020, for example, more than $51 billion was raised in firms headquartered there, or 61% of all U.S. fundraising. The West Coast was a distant second at $12.3 billion.

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