Investor confidence in private debt unshaken by Brexit

November 2, 2016

Our study suggests institutional investor appetite for private debt following the EU Referendum remains robust with three-quarters (73%) of investors committing to either increasing their allocation or maintaining their existing level.

“Brexit has done little to dent investor confidence in private debt as investors increasingly appreciate its ability to deliver steady levels of income in an environment dominated by political uncertainty and low interest rates. While it is likely that returns will not reach the heights we have seen in recent periods, private debt will continue to challenge traditional lending and assert itself as a standalone asset class[sic],” says Paul Lawrence, group head of Funds at Elian.

UK investors currently have approximately £3trn in private debt, representing 6% of their total assets. Post Brexit, the majority (54%) of investors are upbeat about the private debt market’s continued expansion over the year ahead, a marginal decline in sentiment from before the vote where 60% of investors predicted growth. An additional 19% think the private debt market will remain the same size.  “Private debt is a rapidly maturing industry, and one which, as the findings from recent research by Elian illustrate, shows no signs of slowing down.  Given the current economic insecurity, private debt is poised to make even greater strides into the mainstream in the years ahead,” Tim Hames, director general of the British Private Equity and Venture Capital Association (BVCA) says.

Per the findings, 41% of investors are positive about the outlook for private debt, driven by the robust performance it has generated in recent years.  Indeed, nearly three-quarters (70%) of investors said their private debt investments had met or exceeded expectations, while only 13% reported they had fallen short.

As the European direct lending market continues to mature, Elian’s study highlighted the key headwinds it is likely to face and of these, regulation – and Brexit in particular – emerged as the biggest challenge, per 60% of investors.