The figures highlight the strong trend toward private investment assets in contrast to more conventional listed equities, government bonds and bank lending.

Disruptions to global bond markets amid central bank interest rate rises and attempts to curb inflation could accelerate the move by some investors into private debt, research firm Preqin has said.

So far this year, a total of $174 billion has been raised for 141 private debt funds globally, against $178 billion in the whole of 2020 (a record 284 funds), and the record total of $215 billion raised in 2021 (273 funds).

Preqin said most private debt loans are floating rate, so their valuations are “less vulnerable” to interest rate rises. 

The vibrant state of such private debt fits the growing interest in private market investment more broadly – a steady theme in the wealth management sector over the past decade. Tougher Basel bank capital rules after the 2008 financial crisis, and other controls on the banking regime, encouraged some of the lending activity once dominated by banks; this has migrated to some extent into channels such as funds. (This is sometimes rather misleadingly called "shadow banking" although it is not a secretive field.) Private market investment is also seen as an inflation hedge – another highly relevant theme at the moment.

The number of private debt funds in the market has also increased faster than in any other alternative asset class, rising from 199 in 2018 to 787 in 2022.

In other details, Preqin noted that the average fund size is trending “steadily upward.” It stood at about $500 million in 2017 and is at $1.2 billion so far this year – although the latter figure is likely to come down as more data about smaller funds is collated, it said.

“We forecast that private debt – led by direct lending vehicles – will grow from $1.2 trillion AuM globally in 2021 to $2.3 trillion over the next five years, at a healthy annualized growth rate of 10.8 per cent. It will perform well, particularly for investors who take a diversified, multi-regional approach,” RJ Joshua, vice president, Research Insights, in the Preqin Special Report: The Future of Alternatives in 2027, said. 

Potential dark clouds?
There are some signs that investors aren't buying all of the private markets hype, however.

As banks and finance companies have withdrawn from riskier segments of lending, direct lending from private credit funds has boomed from less than $10 billion in 2006 to over $400 billion in 2021. However, many newer entrants into private markets haven’t been tested across a credit cycle and may not have the workout and recovery skills of more experienced firms, according to PGIM, the $1.3 trillion global investment management business of Prudential Financial. 

In a report, entitled The New Dynamics of Private Markets, PGIM said that tightening monetary conditions and a slowing economy will push investors to navigate the increasingly blurred lines between private and public assets, address liquidity concerns and explore newer segments of private credit markets.

“With the rising possibility of hard landings in the US, Europe and emerging markets, this will be the first test since the global financial crisis of whether nonbank financial institutions have diversified risk and brought better market judgment, or created new, hidden concentrations of risks,” Shehriyar Antia, head of thematic research, PGIM, said.