Global private debt fundraising has slowed down slightly this year, tailing off from last year's record-setting pace.

In the first six months of 2022, 66 private debt funds raised a total of $82 billion—compared with the roughly $93 billion collected across 130 vehicles in the same period a year ago, according to PitchBook's H1 2022 Global Private Debt Report.

Direct lending, the largest private debt category, represented over a third of capital raised in the first six months of this year. Other strategies—in particular credit special-situations and real-estate debt—also received strong investor interest during that period.
   

Private-credit managers raising new capital have had to contend with challenges arising from monetary policy tightening and the brutal stock sell-off. While the interest-rate hikes have made existing floating-rate debt instruments more appealing to investors, they also offer incentives to investors to raise their allocation to more liquid credit investments such as corporate and government bonds. This will be even more prevalent as rates continue to go up.

The so-called "denominator effect" due to the sharp slide in the equity market in the first half of 2022 is another factor that dampened fundraising. Some limited partners held back on making new commitments to private-market funds as the decline in public-market valuations left them overallocated to alternative assets.

That said, investor enthusiasm for private debt funds will likely pick up in H2 2022 and early 2023, fueled by the asset class' higher-than-expected returns and the growing size of the private equity market, the research note said.

PE firms will continue to offer direct lenders growing opportunities to deploy capital. That trend will accelerate as securing funding in high-yield bond and leveraged loan markets becomes harder, the note said.

Sponsors are increasingly turning to private credit and direct lenders to fund deals, and credit managers are also offering larger loans to finance big-ticket leverage buyouts.

There have been quite a few unitranche financings of over a billion dollars provided by private debt managers this year to support buyout deals—often in the form of a club deal split among several large direct lenders, the note said. For instance, Hellman & Friedman's acquisition of Information Resources included a $4.5 billion unitranche facility arranged by lenders including Blackstone, Ares Management, Blue Owl and Oak Hill Advisors.

Increasing deal size has led to growth in fund size in general, according to Dylan Cox, PitchBook's head of private markets research. A good number of private-debt funds have closed at over $1 billion in the first half of this year. As of June 30, the combined funding amount these vehicles raised—at least $70.5 billion—accounted for 85.9% of total capital raised by private credit funds, according to PitchBook data.