Direct lending has been ranked as the most popular among private debt fund strategies, according to new research among European institutional investors conducted by Elian, a leading fiduciary services provider.
Of those private debt fund strategies most favoured amongst investors over the next 12 to 24 months, direct lending took poll position with 55% of the vote, as fund houses increasingly enter a space traditionally occupied by banks. Ranked second was mezzanine finance (48%), shortly followed by distressed debt (42%).
The response from investors was in spite of those challenges currently facing, and expected to impact the European direct lending market. According to investors, the biggest obstacles to growth are regulation (60%), the ability to fund raise (37%), maintaining a low cost of capital over the long-term versus traditional banks (35%), a resurgence in bank lending (32%) and performance (27%).
Charles Le Cornu, Head of Private Equity at Elian, commented: “We have seen fervent growth in the alternative funding market over the last two years and private debt funds within it. This has been driven largely by the creation of the Capital Markets Union, charged with mobilising capital in Europe and which has acted as fundamental catalyst for the continued strength in alternative lending platforms.
“A secondary factor has been the long term trend of ongoing bank disintermediation across Europe. Fund managers have been drawn to the direct lending space following regulations introduced after the financial crisis that have made it harder for banks to provide financing to businesses. As European banks shed assets this trend will only continue, increasing the demand for direct lending.
“Jersey continues to be one of the world’s major international finance centres providing stability and expertise during uncertain times. Jersey has global capabilities, making it the ideal domicile in such a fast paced industry. As demand for direct lending continues, Jersey will be well placed to provide services to fund managers operating in this space.”