A new chapter begins
Private Markets in Motion
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Discover how asset managers around the world are thinking about the future of the private debt industry.
“Private Markets in Motion” is Mercer’s new thought leadership series showcasing private markets’ key trends and capital flows in a different asset class each quarter. We aim to advance the discussion on the future evolution of private markets, particularly in guiding the industry towards a more distinctive and consistent approach in service of well-defined outcomes for asset owners.
Our first report focuses on private debt, a timely contribution given the continuing growth of the private Debt market globally. This study compiles the views of 57 respondents worldwide with more than $2tn in assets under management (AUM), asking for their insights on the current private debt space1.
“Global private debt assets are now measured in the trillions, and with an estimated $90 trillion in financing needs forecast for the US alone over the next decade, we see it holding an ever more critical role within institutional portfolios, particularly as it becomes a more mainstream and diversified asset class.”
Key Findings
Private debt firms remain positive on the outlook for growth in the private debt market, anticipating continued growth of both general partners (GPs) raising funds and limited partners (LPs) allocating to the sector.
Four-in-five (80%) private debt managers expect to see an increase in the number of GPs raising over the next 3-5 years, while just 14% expect to see a decline. The vast majority intend to play a role in this growth, with 77% of managers surveyed planning to launch a new private debt strategy themselves over the next 12 months.
More than half (56%) of respondents expect average loss rates to increase by between 10-50 basis points over the coming two years, while a further 9% expect loss rates to rise by more than 50 basis points.
40% of managers expect to see spreads increase slightly over the next 3-5 years, predicting increases of 25-75bps, while 2% predict an increase of more than 75bps.
At the same time, more than half (53%) of private debt managers expect to see fund-level fees fall in the next 2 years. Asked about their expectations for both management and performance fees, managers said they expect to see a slight decrease – equivalent to a drop of up to 25 basis points in annual management fees and between 0.4-2.5 percentage points in carried interest.
The majority (56%) of asset managers surveyed said they felt the conditions for payment-in-kind financing remained broadly in line with a year ago. However, a significant minority (42%) saw it as a riskier option.
Despite the concerns identified by managers, only 24% of respondents planned to tighten their terms around PIK financing, with 28% keeping terms the same and 48% placing them under review for the time being.
Private markets in motion
Global Head of Private Equity and Private Credit
Head of Private Debt, Europe, Mercer