Mark O’HareCEO, Preqin

November 15th, 2016

Private Debt: Will this Ever Be as Big as Private Equity?

An Overview of the Market

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Private Debt as a % of Alternative AssetsIn

fras

truc

ture

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

Infr

astr

uctu

re

Nat

ural

Res

ourc

es

Priv

ate

Debt

Priv

ate

Equi

ty

Real

Est

ate

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3% 2%

6%

68%

21%

5% 5%7%

64%

19%

6%

2%

11%

61%

20%

6%2%

14%

58%

20%

4%

8% 8%

64%

17%

10%

4%

13%

55%

17%

7%

3%

13%

57%

20%

7% 7%

15%

53%

18%

8%6%

14%

54%

18%

7% 5%

12%

57%

19%

7% 7%

15%

52%

19%

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Private Debt Fund Raising by Year

Vintage Year Number of Funds Aggregate Capital Raised (bn)

Average Fund Size(mn)

2016 YTD 97 $56.9 $686

2015 148 $95.6 $708

2014 132 $73.5 $649

2013 154 $78.1 $580

2012 111 $62.1 $658

2011 96 $46.6 $558

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Funds Currently Raising Capital

Type Number of Funds Aggregate Target Size (USD Bn) Average Fund Size(mn)

Direct Lending 130 $52.55 $404

Distressed Debt 44 $40.15 $913

Mezzanine 59 $23.25 $394

Private Debt Fund of Funds 14 $2.64 $188

Special Situations 31 $13.98 $451

Venture Debt 15 $1.79 $119

Totals: 293 $134.36 $459

* 26.2% of the funds currently raising are first time funds*

*European Direct Lending – 39 Funds @ $17.08bn*

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Direct Lending: Private Credit Growth DriverDirect Lending Fundraising by Year

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Vintage Year Number of Funds

Aggregate Capital Raised (bn)

Average Fund Size(mn)

2016 YTD 22 $10.3 $573

2015 28 $15.4 $593

2014 32 $19.3 $688

2013 34 $14.4 $451

2012 16 $5.4 $452

2011 11 $2.7 $271

Vintage Year Number of Funds

Aggregate Capital Raised (bn)

Average Fund Size(mn)

2016 YTD 12 $7.6 $758

2015 17 $19.8 $1,235

2014 16 $12.7 $797

2013 15 $8.3 $637

2012 6 $3.5 $584

2011 2 $1.1 $550

Europe

North AmericaDirect Lending Fundraising North America & Europe

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European Dry Powder: Private Equity & Direct Lending

2011 2012 2013 2014 2015 2016$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$124$117

$133$143 $144

$169

$5 $6

$18$25

$32$26

Private Equity Dry Powder Direct Lending Dry Powder

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Global Buyout Industry By Total Deal Size

2014 2015 2014 2015No. of Deals Aggregate Deal

Value

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

49% 51%

4% 3%

20% 18%

9%6%

13% 14%

13%10%

10% 8%

21%

11%

8% 9%

53%

70%

$1bn or More

$500-999mn

$250-499mn

$100-249mn

Less than $100mn

Prop

ortio

n of

Tot

al

No. of DealsAggregate Deal

Value

2014 2015 2014 2015

Less than $100mn 49% 51% 4% 3%

$100-249mn 20% 18% 9% 6%

$250-499mn 13% 14% 13% 10%

$500-999mn 10% 8% 21% 11%

$1bn or More 8% 9% 53% 70%

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What % of the Current Buyout Dry Powder is Addressable by Direct Lending Dry Powder As it Focuses on MM and below.

0

100

200

300

400

500

600

185.6 176.9

257.2

378.2

437.7

481.1 480.5

422.3388.2

357.7

407.7

449.1 463.8

534.5

Buyout Dry PowderLooking at the last slide assume that 50% of this goes to MM and below… That is $267.3 mn in “addressable” market

Assume 35% equity 65% debt… $411 bn dollars in debt to be needed in this mm space (visualize this?)

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Conclusion• There is $411 debt needed in the mm and below space given current PE dry powder.

• Question remains how much of the market will be serviced by banks and how much will be taken on PE??

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Managers: Private Equity vs. Private Debt

Private Equity

• Total Active GPs: 10,555 Breakdown by Location• North America: 5,189• Europe: 2,658• Asia and Rest of World: 2,705

Private Debt

• Total Active GPs: 1,380Breakdown by Location• North America: 797• Europe: 352• Asia and Rest of World: 231

Investor Outlook– Private DebtWhat are Investors’ Thoughts on the Space?

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Who Are They?

16%

14%

13%

9%9%

7%

7%

5%

5%

15%

Institutional Investors in Private Debt by Type

Private Sector Pension Fund

Public Pension Fund

Foundation

Insurance Company

Endowment Plan

Wealth Manager

Family Office

Fund of Funds Manager

Asset Manager

Other

59%26%

8%

7%

Institutional Investors in Private Debt by Location

North America

Europe

Asia

Rest of World

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And Compared to other Alternative Asset Classes?

Performance Expectations in the Next 12 Months

Perf

orm

ance

Exp

ecta

tions

in th

e Pr

evio

us 1

2 M

onth

s

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Investor Views and Appetites

Investor Views Investor Appetite

59%

32%

9%

Investors’ General Perception of the Private Debt Industry at Present

Positive

Neutral

Negative

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LP Satisfaction

18%

66%

16%

Proportion of Investors that Feel Their Private Debt Invest-ments Have Lived up to Expectations over the Past 12 Months

Exceeded Expectations

Met Expectations

Fallen Short of Expec-tations

Jan-13 Jan-14 Jan-15 Jan-160%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14% 14% 13% 11%

68%74%

52%66%

18%12%

35%23%

Proportion of Investors that Feel Their Private Equity Fund Investments Have Lived up to Expectations over the Past 12

Months, 2013 - 2016

Exceeded Expectations

Met Expectations

Fallen Short of Expec-tations

Prop

ortio

n of

Res

pond

ents

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LP Outlook- Allocation Plans

43%

44%

14%

Investors’ Expected Capital Commitment to Private Equity Funds in the Next 12 Months Compared to the Past 12

Months

More Capital

Same Amount of Capital

Less Capital

46%

41%

14%

Investors’ Expected Capital Commitment to Private Debt Funds in the Next 12 Months Compared to the Past 12

Months

More Capital

Same Amount of Capital

Less Capital

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Data Sources

• Free reports available from www.preqin.com/research

• Preqin’s online services: www.preqin.com/services

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Further Information

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Ryan Flanders, CAIA – Head of Private Debt Products rflanders@Preqin.com