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Established 1996
Wednesday 24 April 2019


Institutional investors account for 70 per cent of private credit market

Written by Sunniva Kolostyak

Institutional investors are investing more in private credit, accounting for 70 per cent of the market’s capital, an investor survey shows.

The Financing the Economy 2018 report, from the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA), shows that the majority of investments come from pension funds, insurers and sovereign wealth funds.

Of the capital industry, 31 per cent come from European countries, excluding the UK. This is a sign that the European market is becoming a core region for private credit, the report said.

“What began as a cyclical trend is now a structural shift: an increasing number of institutional investors now have specific alternative credit allocation categories in their portfolios,” the report said.

The report said the growing influence of institutional investors in private credit is evident in the use of managed accounts for single investors, where private credit managers create bespoke investment accounts for individual investors.

The influence institutional investors have in private credit will have profound implications for the industry, as managers may find their due diligence processes subject to greater scrutiny before gaining allocations. This, the report said, could be solved by continuous dialogue between investors and managers.

In a statement, ACC chair Stuart Fiertz said: "‎This survey is the biggest and most comprehensive to date and will provide greater transparency on our activity to the market, the investors and the regulatory community. We believe this will be important as the cycle turns, to ensure we maintain standards, remain disciplined and be responsible stewards of capital over the long term."

A significant number of investors are investing in the market for the first time, which indicates that there still are opportunities in the market, the report said. It also showed that the majority of the capital comes from North America.

According to the ACC, private credit is on track to $1 trillion of assets under management by 2020 and has become a globally established source of mainstream finance.

The report comes as UK’s Financial Stability Board recognises market-based finance with the new term ‘non-bank financial intermediation’, the ACC said. It is based on a survey of nearly 70 private credit managers with a collective total of $470bn of private credit assets under management across a broad cross-section of jurisdictions and strategies.

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