LONDON, Oct 4 (Reuters) - The global private credit market is set to reach US$1trn by 2020, according to a report from the Alternative Credit Council (ACC), an affiliate of the Alternative Investment Management Association (AIMA) that was published on Wednesday.
Assets under management in the industry stand at US$605.5bn, which is split between dry powder and committed capital and is set to reach US$1trn mark by 2020, according to the report titled “Financing the Economy 2017”.
This expansion will come as funds sitting on record amounts of available capital expand their scope beyond the middle market and target larger scale transitions.
“Where once the core of private credit activity was in the SME market, private credit managers are now participating in large scale transactions - historically the preserve of traditional bank lending or the public bond markets,” the report said.
The popularity of private credit in the US has fuelled interest in the product across Europe and Asia Pacific as managers look for growth opportunities.
As the sector continues to attract more investment, the amount of dry powder decreased as a proportion of the total assets in the industry to 36% in 2017, from 38.8% in 2016, the report said.
Larger borrowers that have more than US$75m EBITDA make up 18.4% of the market, and a fifth of managers are targeting loans in excess of US$100m.
The managers surveyed by the ACC cited their ability to provide quick decisions on loans, underwrite complex transactions and flexibility on terms as the reason for their growing popularity with borrowers.
Managers are not only targeting larger transactions but are also starting to mirror other features of Europe’s syndicated loan and bond markets.
Both covenant and coupon terms have shifted more favourably towards the borrower. Nearly half of private credit managers said that covenants had become less onerous in the past three years.
Some managers are even seeing demand for covenant-lite structures, which were previously reserved for larger companies.
Managers are also seeing more demand for longer dated loans, and almost a quarter have a target term of six years or more, compared to 8% in 2015.
However, fund managers are remaining disciplined and nearly half of all managers are not using leverage to boost their returns.
While the majority of activity comes from private equity-driven transactions, sponsorless transactions are increasing and accounted for 44.9% of all loans made by private debt funds this year, up from 37.5% in 2016, according to the report.
Jack Inglis, chief executive of AIMA, said: “Private credit has become a permanent feature of the lending landscape. Performance across the industry continues to be strong relative to many other asset classes.”
“This has attracted fundraising. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fuelling its expansion into new markets,” he added. (Editing by Claire Ruckin and Tessa Walsh)