Investor demand soars for alternative credit and private debt, finds report

A new survey reveals that investors are set to increase their allocations to private debt over the coming year.

Elian, a funds services provider, has surveyed 88 alternative investment professionals, finding that 60 per cent see the private debt market growing over the next 12 months. 41 per cent of those investors are likely to increase their allocation to private debt during that time, while 15 per cent intend to significantly increase their allocation. 29 per cent of respondents said that their allocation would remain unchanged.

Further to these results, with a focus on performance, 73 per cent of investors indicated that their investments in the private debt space had met or exceeded expectations, while a mere 13 per cent found that their investments had fallen short of the mark.

41 per cent of the investors surveyed are positive about the outlook for private debt, which is touted by Elian as a sound diversification play alongside bonds and equities.

Charles Le Cornu, head of private equity at Elian, commented: “Complex strategies seen from traditional institutional lenders following the financial crisis have continued to weigh heavily on business growth. As a result, there has been a significant increase in demand for forms of alternative lending, specifically as institutional investors come up against continuing low yields from mainstream fixed interest vehicles.”

While alternative lending as a phrase is broad enough to encompass a whole range of direct investment strategies, there is no doubt that online lending companies fit within the universe. But the bulk of the activity continues to revolve around extending credit to mid-market SMEs. A recent report by Deloitte and AIMA hailed the $560bn private credit market as a “quiet revolution” in the way that companies secure financing. That report made no mention of online lenders, but investors are increasingly wising up to the opportunities provided by fintech.

Private equity firms are among the biggest backers of private credit. Alex Scott, a partner in private equity firm Pantheon International’s investment team, recently told AltFi that he continues to see plenty of opportunities in fintech, despite the travails of Lending Club. Pantheon is indirectly invested in a number of big names in online lending, including Lending Club, Funding Circle and SoFi – which stands as a significant vote of confidence in the sector. Will other, larger investors soon follow suit?