Institutional interest in private debt has never been greater, at least based on the $107 billion raised by new funds last year, as tracked by Preqin. Yet, for many who are still familiarizing themselves with the asset class, several questions remain, particularly as the field becomes more crowded with new entrants and as different flavors of direct-lending strategies add complexity to a market that up to now has enjoyed its relative obscurity.
In some ways, this budding interest stems from challenges in other asset categories. In the most recent "2018 Asset Allocation and Market Outlook" report from investment adviser Cliffwater LLC, for instance, the consultant forecast that 10-year returns for buyout funds are expected to descend into the single digits, while hedge funds aren't even expected to eclipse the performance of U.S. equities. This comes at a time, too, when public pension plans need to quickly plug a growing funding gap. The Pew Charitable Trust, according to an issue brief published in April based on fiscal year 2016, highlighted that according to the most recent data, unfunded liabilities at state pensions collectively stand at $1.4 trillion, a shortfall attributable to returns that haven't met expectations.