Demand for private debt is increasing rapidly. Here’s why.
Jul 21, 2022
Private debt has seen immense growth in recent years. Victory Park Capital (“VPC”) Senior Partner and Co-Founder, Brendan Carroll, explains why the demand for private debt is increasing steadily among both investors and borrowers.
Historically, private debt as an asset class has been seen as a stable choice in times of volatility. With an uncertain market environment and an especially volatile past few years, allocators have been increasingly turning to private debt for insulation from broader market shifts. Last year alone, capital dedicated to private debt reached $191.2 billion globally, the highest annual sum since 2017.
Returns are also giving participants even more confidence in this asset class, especially considering recent volatility in the public markets. Private debt has continued to exhibit strong performance, and we believe capital allocation to private debt could eventually overtake real estate. With inflation reaching new heights and interest rates on the rise, we believe inflows to private debt – and specifically strategies focused on asset-backed lending – will continue as investors seek alternatives to traditional fixed income. VPC’s asset-backed, senior secured credit strategy aims to offer higher yields and greater structural protections than traditional lenders, with an emphasis on capital preservation and income generation across market cycles.
On the other side of the aisle, we are also seeing an increase in demand for private debt as a practical alternative to growth equity financing for emerging businesses. As geopolitical issues and continued market uncertainty have dampened startup funding globally in the first half of the year, growth-stage companies are increasingly turning to debt financing to support their expansion plans. We expect this trend to continue.
We encountered a similar trend during the Global Financial Crisis in 2008, where businesses began increasingly looking for nontraditional sources of capital. Since VPC’s founding in 2007, we have deployed a disciplined approach to sourcing, underwriting and lending to technology-enabled companies. Our hands-on approach with founders and executive leadership, along with a customizable lens to deal structuring, enables VPC to provide flexible solutions that meet borrower’s unique needs. We seek to provide best-in-class structured solutions for borrowers and institutional level risk management and client service for our limited partners.