Debt funds in Europe raised as little money for direct lending funds in 2023 as they last did in 2017, according to the latest Private Debt Deal Tracker from management consultants Deloitte, which collects transaction data from 78 debt funds active in Europe and the UK. According to the study, 29 funds raised a total of just 27.6 billion dollars from investors last year.

In terms of volume, this is 38.4% less than in the previous year and even 40.8% less than in the record year of 2021. In addition, around three-quarters of the 27.6 billion dollars raised in 2023 was distributed among just five fund managers: Hayfin, Permira, Bridgepoint, Blackrock and Eurazeo together collected around 20.7 billion dollars.

Fundraising is no longer a sure-fire success for the private debt sector, which had been spoilt by success before. The high proportion of mega funds shows that smaller fund managers, in particular, are currently finding it difficult. Fundraising processes are dragging on. According to Deloitte, processes took an average of 21 months in 2023. In comparison: In 2019, the average was just 13 months.

Transactions have recently been more complicated for debt funds. With 593 deals, the European market celebrated its third-best result in the history of the data series. However, this was mainly due to the fourth quarter, which was the most active since the second quarter of 2022, with 189 transactions. It is unlikely to get any easier for debt funds in the future, as competition is fierce. According to data provider Preqin, there have never been more active debt funds on the market.

Investment banks are also looking to recapture lost market share in the large-cap market. While debt funds benefited greatly from the lull in the liquid capital and broad syndication markets in 2022 and early 2023, the wind is now changing. According to Deloitte, banks are now targeting those private debt-financed companies and enticing them with more favourable refinancing terms. Goldman Sachs, Morgan Stanley, J.P. Morgan & Co. have also launched their own direct lending funds. Aside from new business, the question for debt funds is how the default rates in the loan portfolios will develop in the future and how the funds have their risks under control.