Institutional investors splurged on private credit in 2017 to an unprecedented degree.
New commitments to private debt strategies topped $10 billion to reach a peak of $28.7 billion in the year ended Dec. 31, a 57% increase from the prior year.
Analysis of Pensions & Investments' reported hiring activity by asset owners showed astronomical growth in new commitments to strategies investing in non-public securities that include direct lending, distressed/special situations, structured products, mezzanine debt, specialty leasing and financing, and multicredit strategies.
In 2017, reported commitments to private debt by pension funds, endowments, foundations and insurance companies were:
- direct lending, $11.3 billion, up 211% from 2016;
- distressed debt/special situations, $10.4 billion, a 44% increase;
- general and multiasset credit, $3.1 billion, a rise of 42%;
- structured credit, $2.9 billion, 25% higher; and
- mezzanine, $983 million, down 66% compared to 2016.
Longer term, asset owners committed a total of more than $100 billion to private debt in the eight years ended Dec. 31, P&I data showed. Total commitments in 2017 were 617% higher than the $4 billion tracked by P&I in 2010.
Actual commitment levels likely are higher because some institutions don't make their investment activity public. U.S. public pension funds accounted for most of the 271 private credit moves reported by P&I last year.
Industrywide, assets managed globally in private debt strategies (excluding unfunded commitments) totaled $638 billion as of June 30, an increase of 211% in the 9.5 years since year-end 2007, according to data from Preqin Ltd.
The massive growth in private credit investments to date is only the beginning, sources said. "We're seeing the tsunami now and it's primarily driven by worries about a low-return environment," said Tod J. Trabocco, managing director-private credit, at investment consultant Cambridge Associates LLC, Boston.
"Private credit is only starting to really take off, and institutional investors are at the forefront of investing in this area," Mr. Trabocco said.