Private debt fundraising stagnated in H1 2022 but is still on par with last year’s record-setting pace. Direct lending continues to be the standout strategy, accounting for more than a third of capital raised in the first half of the year. We expect the continued growth in PE dealmaking, combined with direct lenders’ taking of market share from banks, to fuel private debt’s dealmaking capacity in the coming years.
The current macroeconomic backdrop presents a doubleedged sword for private debt funds. On the one hand, the floating-rate nature of many of these instruments makes existing loans more lucrative, as coupon rates will rise in step with central bank rate hikes. On the other, rising rates could make more-traditional fixed-income
investments relatively more attractive to allocators.
It has been a tough year for the leveraged loan and high-yield bond markets in both the US and Europe, according to data from LCD. Concern over inflation, rising rates, the potential for recession, supply chain issues, and the ongoing war in Ukraine weighed heavily on sentiment, sparking downturns in the secondary market not seen since the onset of the COVID-19 pandemic. The Morningstar LSTA US Leveraged Loan Index was down 4.6% YTD, the second-worst reading for any comparable period since the global financial crisis.
