Private debt AUM to hit all-time high of US$2.8 trillion by end-2028: Preqin
Michelle Zhu
THE outlook for private debt remains bright amid economic difficulties, with the sector’s assets under management (AUM) forecast to grow at a compound annual growth rate (CAGR) of 11 per cent from 2022 to 2028, to reach an all-time high of US$2.8 trillion.
This figure is nearly double the US$1.5 trillion recorded in 2022 and may see further upside if banks continue to be cautious in extending loans, London-based investment data platform Preqin said.
In its Future of Alternatives 2028 report released on Tuesday (Oct 17), Preqin said it foresees the biggest uptick in performance for the distressed-debt space – to 14 per cent for 2022 to 2028, from 7 per cent for 2016 to 2022.
Distressed debt refers to debt securities at risk of default as their issuers face financial difficulties.
Such debt is “well-positioned to benefit from any deterioration in the economy”, said Preqin, which may in turn present investment opportunities for distressed-debt fund managers.
The performance of other strategies within the private-debt asset class is forecast to see limited changes, such as direct lending’s estimated growth at 7.3 per cent for 2022 to 2028, compared to 7.7 per cent for 2016 to 2022.
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On the other hand, Preqin has scaled back its expectations for global venture capital (VC) AUM.
It now forecasts VC AUM growth of US$3.8 trillion by end-2028 to represent a 2022 to 2028 CAGR of 14 per cent, down from its previous 19 per cent projection.
This is in view of the worse-than-expected growth in funds targeting North America amid a global environment of rising interest rates and higher cost of capital, said the company.
“Despite currently experiencing a difficult adjustment period, VC’s share of the total alternatives market is forecast to continue to grow,” added Preqin.
The company nonetheless highlighted an improving outlook for new vintages – referring to the year in which a fund begins making investments – as investors position themselves for earlier-stage investments.
It also noted that much of VC deal flow is currently driven by “a renewed interest in artificial intelligence”. “As inflation decreases from near-record levels, we are likely to see banks change tack, and the end of the current cycle of hikes. Companies receiving VC funding may struggle to achieve the same multiples as in 2021 for the near future, as the focus shifts to fundamentals rather than growth at any cost.”
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