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Alternatives

Private credit assets projected to top $1 trillion by 2020

Private credit is set to grow to more than $1 trillion of assets under management by 2020, the Alternative Credit Council projected.

The ACC, an affiliate of the Alternative Investment Management Association, and law firm Dechert said in a report that 51% of respondents' capital is allocated to small and midsize enterprises or midmarket borrowers. The report covered almost 70 private credit managers running a total $470 billion under management.

Total assets under management now are about $660 billion, according to the report.

The forecast about $1.1 trillion in assets is made up of about 63% committed capital and the remainder dry powder. As of Dec. 31, about $420 billion was committed capital, with the remaining $240 billion dry powder.

By type of investor, pension funds came out on top for 2018, accounting for 35% of total private credit assets under management, followed by insurers at 31%. Sovereign wealth funds accounted for a further 5% in allocations. The remainder were not institutional investors. Comparisons to 2017 were not available.

The report added that private credit managers expect continued growth but are preparing for the potential end to the credit cycle. Preparations include lending at higher positions with the capital structure and by avoiding or rotating away from cyclical sectors, said the report.

Capital structure allocations of the average private credit manager were roughly 42% senior secured, 16% unitranche, 13% mezzanine or junior debt, 11% senior unsecured, 8% payment in kind loan, 4% convertible instruments, 3% holding company, and 2% each to derivatives and hybrid equity allocations. Comparisons for 2017 were not available.

"It's exciting to see the continued growth and success of our industry both in terms of geography, different strategies and underlying asset classes," said Jiri Krol, deputy CEO of the ACC, in a statement accompanying the report. "We are now being recognized as an important and unique source of finance by the policymakers. That said, most in the industry are thinking about what happens next in the cycle as the era of extremely loose monetary policy slowly comes to an end."