A survey by Alvarez & Marsal's Debt Advisory group with approximately 100 private debt funds across the U.K., Europe and the U.S. shows investors are expecting increased dealmaking and fundraising activity in 2024. Responses also suggest that liquidity in the market will improve, but it will not result in lower pricing or higher leverage levels this year.
The study, based on a five-part questionnaire, used a net score
methodology1 to track sentiment on areas such as deal
activity, fundraising and pricing, thus identifying some of the key
trends shaping the private debt market this year.
The key findings of the survey include:
a. Dealmaking and fundraising tipped to get back on track: Private debt funds anticipate increased dealmaking and fundraising activity in 2024, with net scores of 85 and 75, respectively. This suggests both an expectation of greater deployment as well as of more capital entering the market, indicating an interesting shift from recent quarters which saw several fundraising processes being extended and lower levels of deal activity. LP appetite for private credit funds is growing, as higher interest rates help to deliver attractive returns. At the same time, private credit funds are taking market share from banks and are set to benefit further from an uptick in M&A in 2024.
b. Market liquidity likely boosted by incumbents' growing fund power: When asked about the anticipated level of competition in the market in 2024, the funds' responses produced a high net score of 49, which signifies expectations of increased liquidity in the market. When considered relative to the deal activity and fundraising scores, the strengthening liquidity levels can be viewed more as a result of increased fund power from established players ahead of an increased number of new entrants in the market.
c. Pricing and leverage levels set to remain stable despite a competitive market and macroeconomic concerns: Net scores of 23 and near zero in relation to changes in pricing and leverage, respectively, highlight that private debt funds anticipate limited pressure on terms amid increased dealmaking, fundraising and liquidity. It implies that lenders are expecting that a higher number of deals in 2024 will allow them to deploy additional capital without the need to compete on terms. It also suggests limited concerns on macroeconomic conditions.
Overall, our survey suggests that private debt funds are positive about the prospects for the market in 2024, expecting higher levels of capital available for deployment across more transactions, with subsequently limited knock-on impact on either pricing or leverage.
Footnote
1. The net score reflects the percentage of positive responses minus the percentage of negative responses, with unchanged/indifferent responses excluded from the calculation. This methodology provides a sentiment view that can be tracked over time.
Originally published by FIRM on the 8th of February, 2024.
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