A Survey of Private Debt Funds

Joern Block, Young Soo Jang, Steven N. Kaplan and Anna Schulze

No 30868, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite its large and increasing size in the U.S. and Europe, there is relatively little research on the private debt (PD) market, particularly compared to the bank and syndicated loan markets. Accordingly, in this paper, we survey U.S. and European investors with private debt assets under management (AuM) of over $300 billion. These investors are primarily direct lending funds. We ask the general partners (GPs) how they source, select, and evaluate deals, how they think of private debt relative to bank and syndicated loan financing, how they monitor their investments, how they interact with private equity (PE) sponsors and how they view the future of the market. The respondents provide primarily cash flow-based loans and believe that they finance companies and leverage levels that banks would not fund. The direct lending funds target unlevered returns that appear high relative to their risk. They use leverage in their funds, but appreciably less than banks and collateralized loan obligation funds (CLOs). They use and negotiate for both financial and incurrence covenants to monitor their investments. The presence of PE sponsors helps them lend more and craft more effective covenants. U.S. and European funds are similar on many dimensions, but the European funds rely less on PE sponsors and compete more with banks. Overall, the private debt market is both different from, but shares characteristics with the bank loan and syndicated loan markets.

JEL-codes: G24 G32 G34 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fmk
Note: CF
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Citations: View citations in EconPapers (1)

Published as Joern Block & Young Soo Jang & Steven N Kaplan & Anna Schulze & Isil Erel, 2024. "A Survey of Private Debt Funds," The Review of Corporate Finance Studies, vol 13(2), pages 335-383.

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Journal Article: A Survey of Private Debt Funds (2024)
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