Private Debt Investors Doubt Their Ability To Handle Defaults in a Post Pandemic Downturn - a Report Commissioned by Ocorian
- New research finds that 87% of capital markets investors are pursuing a direct lending strategy
- However, almost half (47%) lack confidence in their ability to manage loss recoveries
LONDON, May 20, 2021 /PRNewswire/ -- An overwhelming majority (87%) of capital markets investors are pursuing direct lending strategies though almost half (47%) lack confidence in their ability to manage loss recoveries which could have serious implications if corporate defaults rise as pandemic-driven government support schemes are withdrawn.
According to a Capital Markets report, called Navigating CovExit: searching for value in the debt markets, commissioned by Ocorian1, a global leader in capital markets, fund administration and corporate and fiduciary services1, the majority (57%) of capital market investors have an existing direct lending strategy which they are looking to expand and 30% have a strategy that they are in the process of executing.
With $207 billion having been deployed by 327 direct lending funds globally over the past 10 years2, the study highlights a shortage of confidence among investors that their direct lending abilities will be sufficient to weather the storm. They expressed the least confidence in addressing loss recoveries (47%), risk assessment (53%), statement production (54%) and covenant monitoring (57%).
Ocorian commissioned independent research among 100 capital markets decision makers working in investment banks and private capital firms in Europe, North America, Africa and Asia to assess their operational readiness as they plan their post-Coronavirus pandemic investment strategies.
Respondents from younger firms less than 10 years old were least sure of their loss recovery capabilities when it came to direct lending, with only 41% expressing confidence. Regionally, confidence levels in having robust loss recovery capabilities were lowest among European respondents (28%) – significantly behind North American (40%), African (48%) and Asian (72%) respondents.
Despite their concerns, some 92% of respondents expect corporate insolvencies and restructurings to present opportunities to them over the next 12 months, including 22% who believe these opportunities will be significant.
Alan Booth, Global Head of Capital Markets at Ocorian said: "Relatively few defaults to date suggests that private debt investments have been resilient, but government support and the low cost of funding may be masking a varying degree of trauma in the market. As this support is wound down and interest rates rise we can expect to see distress and indeed opportunities in certain sectors. How private debt managers react will be varied and we are likely to see the hawks outnumber the doves.
"Despite their operational concerns and a weakening in the short-term fundamentals in private credit markets, investors are increasingly drawn to the sector in anticipation of debt restructurings as well as M&A activity arising from the pandemic. However, funds pivoting from private equity or real estate towards direct lending may have challenges in adapting their infrastructure to meet their need for quick execution.
"It's vital managers have sufficiently robust and scalable operational, risk and compliance processes in place either in-house or through an outsourced arrangement to avoid delays and unnecessary risk to themselves and their LPs."
To find out more please join the webinar on 9 June or to download the Navigating CovExit: searching for value in the debt markets full report, please click here.
Notes to Editors
1 Research was conducted among a panel of 100 senior-level capital markets professionals in March 2021. All respondents were involved in business decision-making processes and were evenly spread across Europe, North America, Africa and Asia, coming from either mid-cap or large-cap investment banks or private capital businesses. Respondents worked at businesses with balance sheets ranging from circa $50bn to over $1trn.
2 Preqin data published in S&P Market Intelligence's 2021 Direct lending Outlook paper on 18th December 2020
About Ocorian
Ocorian is a global leader in corporate and fiduciary services, fund administration and capital markets. It has US$260bn in assets under administration and employs 1,250 professionals.
Supporting and protecting global investment is Ocorian's priority; it manages over 17,000 structures on behalf of 8,000 clients including financial institutions, large-scale international organisations and high-net-worth individuals.
Ocorian provides fully compliant, tailored solutions that are individual to clients' needs, no matter where in the world they hold financial interests, or however they are structured.
The group offers a full suite of corporate, fund and private client services across a network of 16 offices spanning all the world's financial hubs. Locations include Bermuda, BVI, Cayman, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Luxembourg, Malta, Mauritius, Netherlands, Singapore, UAE and the UK, as well as a representative office in the US.
To find out more about Ocorian and its services, including regulatory information, visit www.ocorian.com
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