Almost half of limited partners (LPs) expect to increase their allocation to private credit, although more anticipate wider dispersion between the best and worst-performing managers, according to research by Coller Capital.
Investment firm Coller Capital’s Barometer surveyed 108 LPs globally, with more than half managing over $10bn (£7.3bn) in assets.
The firm found that 42 per cent of LPs plan to increase their allocation to the asset class over the next 12 months, which is more than for any other private capital strategy. The survey also revealed that LPs are increasingly viewing secondaries as an emerging segment and the Asia-Pacific (APAC).
However, two-thirds of LPs expect the gap in returns between the best and worst private credit managers to widen over the next 12 to 24 months, and among APAC investors, this figure rises to 73 per cent.
“Our Barometer shows LPs are well aware that the gap in returns amongst credit managers will widen in the near future, underscoring the importance of working with those able to develop and deploy the sophisticated tools needed to manage portfolios through the cycle,” said Jeremy Coller, chief investment officer and managing partner of Coller Capital.
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The survey found that general partner-led secondaries strategies are gaining traction. Some 85 per cent of LPs expect these strategies in private credit to grow further and 20 per cent expect such transactions to become a mainstream feature of the market.
LPs said the main motivations for entering this segment include opportunistic and discounted buying, followed by access to seasoned assets and liquidity needs, the survey found.
“As the private credit market continues to mature, with a growing role for credit secondaries, it’s more important than ever that investors in this area choose the right manager for their money,” said Coller.
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Looking ahead, APAC is emerging as a priority region for global LPs, with India standing out as the market attracting the strongest momentum and Japan closely following, Coller Capital said.
Over the next three years, 44 per cent of LPs expect to increase exposure to India via Asia-focused funds, with a further 28 per cent planning increases through country-specific vehicles.
While for Japan, 34 per cent of LPs expect to increase exposure via Asia-focused funds and 32 per cent through country-specific strategies.
Co-investments are also emerging as a key priority for LPs, with 43 per cent of those surveyed saying that it is becoming more important in their fund selection decisions. Fee efficiency and deal quality remain the primary drivers of co-investment demand, Coller Capital said.
However, the survey found that access remains constrained, with almost one in five saying co-investments are increasing in importance but that they do not have sufficient access.
Alongside co-investments, around two thirds view partnerships between private credit managers and other institutions such as banks and insurers as acceptable provided firms retain full discretion over capital deployment. However, 30 per cent are opposed to such alliances.
