According to a jointly published report from Pemberton, a European private debt manager, and the Saïd Business School of the University of Oxford, total assets under management of private debt funds globally increased from $275 billion in 2009 to $887 billion in 2020. The report was prepared by associate professor of finance Martin Schmalz with the assistance of proprietary data from Pemberton and a legal perspective by Latham & Watkins.
In Europe, direct lending grew from $1.5 billion in AUM in 2009 to $112 billion in 2020. While European direct lending only really started in 2012, the asset class appears to have been materially less volatile than public markets through the COVID-19 pandemic.
According to the report, the growth in direct lending and the total assets under management of private debt funds is due to:
- A reduction in capital supply by banks
- Private equity-induced borrower demand
- The demand from non-private-equity-owned corporates
- Investors’ change in asset allocation in a search-for-yield at a time of low interest rates
“As managing partner of Pemberton, I have seen and participated in the dramatic growth of European direct lending as an asset class over the past decade,” Symon Drake-Brockman, managing partner at Pemberton, said. “This has led to institutional investors making European direct
lending a core part of their asset allocation and has provided European mid-market companies the capital to grow and expand their business.
“Although significant allocations of AUM have been made to European direct lending over this period, there has been limited academic research to assist in analyzing the sector in more detail. Therefore, we have engaged Saïd Business School-Oxford University to provide a review of this rapidly growing sector, supported by Pemberton proprietary data and contributions from Latham & Watkins, a leading global law firm active in this market.”