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Private Debt Boom Continues; Bust not Likely Despite Macro Challenges

DBRS Morningstar published the commentary titled, “Private Debt Boom Continues; Bust not Likely Despite Macro Challenges.” The commentary focuses on the continued expansion of private debt markets and the outlook for private debt fundraising amid challenging macro trends.

-- Private debt is a maturing asset class that has demonstrated resilience and growth over the past decade, with lower-than-expected default rates and good returns. In 2021, private debt assets under management (AUM) reached a record $1.3 trillion, up from $1.2 trillion in 2020.

-- Private debt primarily includes direct lending (45% of fundraising in 2021), distressed debt (16%), real estate debt (11%), special credit situations (9%), and mezzanine financing (7%), with the balance of 2021 fundraising for bridge financing, infrastructure debt, and venture debt.

-- Private debt funds typically attract patient investors with longer-term time horizons for investment. Funds are typically closed end with no redemption rights or limited redemption rights. We believe private debt fundraising may decelerate because of macro trends like rising interest rates and inflation, but it will still grow albeit at a slower pace.

“For patient investors, near-term bumps in the road will likely not be a deterrent for investment,” said Lisa Kwasnowski, Senior Vice President, U.S. Structured Credit.