As economic uncertainties perturb the financial sector due to skyrocketing interest rates, fund-raising initiatives seem to have hit the brakes. However, one segment has persisted in drawing investors – private credit funds which have so far amassed an impressive total of over $130 billion in 2023 alone, according to records from financial services company, Preqin.
At the epicenter of this frenzied activity, lies insurance behemoth Allianz Global Investors. This prolific money management division of the insurance giant, is forging ahead undeterred, with ambitions to mop up a minimum of 1.5 billion euros (amounting to $1.63 billion) for a novel global private credit fund. Sailing high on investor impetus towards this asset class, this plan remains unwavering, according to the spokesperson.
Contrary to the direct lending approach, the Allianz Global Diversified Private Debt Fund channels investment into other credit funds and explores co-investment opportunities as well, acting as a potpourri of investment diversification.
After aggressively committing to alternative investment avenues like infrastructure and private equity, Allianz’s insurance operation has now pivoted to more conventional, or ‘vanilla’, bonds, largely due to the rising interest rates, as per reports from Reuters.
These unpredictable times, presenting the swiftest escalation in borrowing costs witnessed in many decades, do indeed pose a tough challenge for private credit. Nonetheless, instances of defaults by borrowers have remained nominal thus far.
Early this year alone, Allianz achieved a fundraising milestone of 3.3 billion euros for a previous fund, exceeding its initial objective of 1.5 billion euros by a landslide.
After witnessing successive quarter-on-quarter increases, private debt index by law firm Proskauer registered a decline in default rates to 1.64% in the second quarter of 2023.
Consequently, the scramble to catch a piece of the flourishing private credit market pie has intensified among monetary managers. This market, born in the aftermath of the 2008 financial collapse, is evaluated to be worth around $1.5 trillion in assets presently. More importantly, it has witnessed private credit funds gradually but decisively edging into the territory of banks, even in financing large corporate buyouts.
Allianz set up the Allianz Global Diversified Private Debt Fund II in Luxembourg in mid-June, according to company information. The fund has plans to secure its initial close within this year’s end, indicating it’ll have gathered enough capital to commence investments.
Despite a slight dip from December figures, the group’s alternatives portfolio remained sturdy at 231 billion euros by June-end, as suggested in its mid-year results.
In summary, as financial markets continue to evolve amidst challenging and unpredictable economic conditions, it certainly appears the private credit sector is navigating these choppy waters and creating its unique trajectory of growth and stability. Trust in alternatives like private credit funds, showcased by firms such as Allianz Global Investors, suggest a potential silver lining in these turbulent financial times.
