Sovereign funds seek out yields in illiquid private debt funds

London

SOVEREIGN wealth funds (SWFs) seeking higher returns other than from mainstream bonds are helping to drive a boom in specialist private debt vehicles that can provide loans for everything from aircraft leasing to lawsuit financing.

Such specialist funds make their returns in a number of ways, including lending to small and medium-sized firms, investing in distressed assets or by providing infrastructure project finance.

The assets under management in the private debt industry, once a niche sector, swelled to an estimated US$523 billion as of last June from US$483 billion at the end of 2014, according to research provider Preqin in the latest data available.

Not long ago, such investments might have been too risky for the US$6.5 trillion sovereign wealth sector, which invests governments' rainy-day sav…