private debt

Private assets might have dropped significantly in value since the “good years” of 2020 and 2021, but despite a bad year in 2022, they’re still outperforming public market returns by quite a margin, explained Schroders Capital’s chief investment officer Nils Rode at his firm’s private assets 2021 outlook this week.  History shows that private assets investors could have a strong year in 2023 despite the bad overall macroeconomic conditions, he argued.

Investors are increasingly turning to alternative instruments for diversification, risk mitigation and to future-proof their returns, especially given today’s market conditions. This has resulted in surging interest in alternative investments from a wider variety of market participants, which is forcing the alternative asset servicing industry to adapt to new demands. 

As in the sovereign and corporate bond markets, private debt valuations have risen sharply. “However, by focusing on the lower end of the middle market, we have been able to maintain spreads,” said  David Bouchoucha, CIO of Private Debt and Real Assets at BNP Paribas Asset Management, in conversation with Fondsnieuws, Investment Officer Luxembourg’s sister publication.

The question is whether the illiquidity of private markets is still an issue if the market becomes more volatile again. Especially when you realise that liquid markets can also become illiquid.

Guy Wagner of Banque de Luxembourg Investments believes that Western economies will emerge weakened by the health crisis, with higher inflation and huge private debt. His fund is defensively positioned, despite an equity exposure close to 70% of assets under management.

Assets under management of Luxembourg-domiciled private debt funds have risen by 36% to €108 billion in 2020, according to the KPMG/ALFI Private Debt Fund Survey 2020. Investment Officer discussed the dynamics behind the popularity of the asset class with KPMG’s Valeria Merkel and Julien Bieber.