Global private debt fundraising and deal activity in 2019 were significantly lower than in 2018, according to market researcher Preqin.
In its report on private debt activity in 2019, Preqin recorded just 152 funds that reached a final close during the year. They secured about $107 billion, 11 percent down from the year before, and the lowest annual total since 2014. That is markedly lower than the 210 funds that raised $120 billion in 2018.
There have been more than 200 funds that closed each year, between 2015 to 2018, and the aggregate capital raised peaked in 2017 at nearly $140 billion.
“Private debt has been the expansion story of the past decade, but the shine has worn off this narrative in 2019,” said Tom Carr, head of private debt at Preqin.
Consequently, dry powder has declined to $261 billion, from $292 billion in 2018. This is the first decline in dry powder since 2014.
The number of private debt-backed deals in 2019 also fell sharply to 830 deals, with an aggregate value of $48 billion. By comparison, 2018 saw nearly 1400 deals with an aggregate value of nearly $80 billion.
Yet, fund managers continue to launch new vehicles. According to Preqin, at the start of this year there were already 436 funds, seeking to raise $192 billion. By comparison, there were 399 funds that sought to raise $168 billion a year ago.
While it may seem that fund managers will likely face difficulties in raising capital in the year ahead, long-term appetite among investors remains robust, Carr added.
“Fund managers certainly believe that there is significant potential yet to be tapped. They will point to declining dry powder as an indication that they are still able to put capital to work, and this may prompt investors to start making commitments again and boosting 2020 fundraising activity.”
Similarly, in the global private equity markets, fundraising and dealmaking also slowed from the previous two years, although the industry still recorded robust figures.
In 2019, the 1316 private equity funds that closed secured $595 billion. This was lower than the record $628 billion raised in 2018.
During the year, there were 5,103 PE-backed buyout deals that were announced, with an aggregate value of $393 billion. This was lower than the 6,481 deals that were announced, with a total value of $493 billion.
Dry powder, meanwhile, is at a record level of $1.43 trillion, more than double the $750 billion at the end of 2015.
Going into 2020, PE fundraising is likely going to be tough for some funds, Preqin said. There were already 3, 524 funds in the market at the start of the year, seeking a total of $926 billion. This, according to Preqin, is almost two years’ supply at 2019 fundraising levels, which suggests that some PE funds could struggle to secure funds.