• Insights Paper
    • EN
private debt
25.02.2021 117

Investing in post-Covid-19 European private debt markets: focus on selection


25 February, 2021

> 10 minutes
Investing in post-Covid-19 European private debt markets: focus on selection

25 February, 2021

> 10 minutes

Dear client,

Private debt markets have grown rapidly since the Great Financial Crisis (GFC), with global assets under management (AuM) tripling, from $275bn in 2009 to over $850bn in 2019. The European market accounts for about a third of these assets.

The Covid-19 crisis has had a significant impact across private debt markets, with fundraising and deal making having been affected from early 2020. While the onset of this crisis was unexpected, concerns were already being raised about late-cycle conditions in private debt markets related to underlying economic conditions and to emerging risks associated with demand-supply imbalances, tightening spreads, and looser credit standards which showed up in the prevalence of covenant-lite transactions, increased EBITDA adjustments, and rising leverage. All this led to a challenging year for private debt markets in 2020.

However, prospects are improving for 2021. As the crisis’ peak is probably behind us, this year, the focus will be on new opportunities which should be plentiful based on lower financing from banks that will leave the door open to private debt funds to cover issuers’ financing needs. These needs will include servicing the extra debt that corporates have incurred and the requirement to step up their investment expenditure to adapt to the new challenges brought about by the crisis, such as the need to have short and straightforward supply chains and efficient digital infrastructure.

A key trend on the supply side in 2021 should see markets moving from large underwriting towards a more ‘clubby’ direction, with room for private debt funds to subscribe to those transactions in terms of club deals. This market environment will be investor-friendly, as private debt funds will have more power and leeway to negotiate the legal documentation underpinning each transaction.

On the demand side, there could be opportunities in M&A and consolidation, but stringent selectivity will be paramount on both geographical and sector bases in order to avoid those areas that have been hit hard by the crisis and could experience a spike in defaults.

From an investor standpoint, private debt is an established, systemically and complementary asset class that could be included in strategic allocation analysis, as we also highlight in our recent long-term expected returns publication. Historically, it has delivered diversification, stable income streams, and consistent premium returns over liquid and traditional debt with modest drawdowns over the long term. Additionally, it has been a systemically important contributor to economic growth, thanks to the support it provides to the real economy, as the contribution of banks faded after the GFC due to more stringent regulation.

Private debt encompasses a wide range of opportunities (e.g., senior debt, direct lending, distressed debt, etc) which have different goals, underlying dynamics, and risk-return profiles. In 2021, investors could focus on safer strategies at the top of the capital structure where risk-adjusted returns are attractive, resulting in a key test arising for some limited partners (LPs) and general partners (GPs). Some GPs might even exit the market.

To find out more, download the full paper

Discover Amundi Real Assets

This website is solely for informational purposes.
This website does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. Any securities, products, or services referenced may not be registered for sale with the relevant authority in your jurisdiction and may not be regulated or supervised by any governmental or similar authority in your jurisdiction.
Furthermore, nothing in this website is intended to provide tax, legal, or investment advice and nothing in this website should be construed as a recommendation to buy, sell, or hold any investment or security or to engage in any investment strategy or transaction. There is no guarantee that any targeted performance or forecast will be achieved.

Get in touch with us

Our online help service is available to answer your question.

My personal information

If you have a question about our company or one of our products, please complete the form to get in touch. Please do not mention your account numbers or critical data in this form.

CAPTCHA This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.

(*) Required fields
All our job offers (Permanent and temporary position, Internship, Apprenticeship or VIE) are available on our dedicated website: https://jobs.amundi.com.

Register and apply directly online.

Amundi on Twitter