(Bloomberg) -- Private credit fundraising scraped the lowest level in any quarter since 2020 as inflation remains stubbornly high and the Federal Reserve primes investors for interest rates to stay elevated for longer. 

Managers across the private debt arena raised $30.6 billion in the first three months of this year — roughly 14% below the average of $35.8 billion seen over every first quarter since 2017 — a report from data provider Preqin Ltd. shows. Interest rates and inflation were highlighted as investors’ top two concerns for private debt in the report, at 70% and 37% of those surveyed.

The broader market now expects fewer rate cuts than first thought at the start of the year, while US inflation data came in hotter-than-expected in March, points out Preqin. And on Wednesday, Fed officials left the benchmark rate in the 5.25% to 5.5% target range — where it’s been since July — as they signaled fresh concerns about inflation and indicated borrowing costs may be kept higher for longer. 

“It’s been one of the worst fundraising markets there’s been for private funds,” said Yasho Lahiri, a partner at Kramer Levin practicing in private investment funds. “I think it has to do with the fact that there hasn’t been a Fed rate cut and a lot of people are sitting and waiting to see if there’s more guidance before they do anything.”

Meanwhile, stress is building in the $1.7 trillion private credit market that is starting to negatively impact investment returns. Struggling companies may have to deal with constrained cash flows for longer than initially anticipated — and longer than they may be able to handle. All at a time when the syndicated debt market has come roaring back, stealing borrowers from private credit and placing further pressure on direct lenders’ returns.

“Capital raising is really hard and there is a good number of managers that will fail to reach their targets,” said Jeffrey Griffiths, co-head of global private credit at Campbell Lutyens & Co. Inc. 

However, the signs are not all negative for direct lenders. Though fundraising has tumbled, investors are still happier with private debt than any other alternative asset class, according to Preqin. And the slower pace of fundraising could also be temporary, with the potential to make up for lost ground later in the year, the report notes.

“If the outlook on the economy settles, so should expectations around rate volatility,” wrote RJ Joshua, the report’s lead author and Preqin’s head of private debt and fees, research insights. “This may then translate to increased investor confidence and stronger fundraising in the remaining quarters of 2024.”

Deals

  • CoreWeave Inc., a cloud computing provider that’s among the hottest startups in the artificial intelligence race, is finalizing a roughly $1.1 billion preferred equity investment to help fund growth
  • Goldman Sachs Asset Management is leading a €1.5 billion private credit loan package for London-based card reader maker SumUp Payments Ltd.
  • Grifols SA has completed a private placement that raised €1 billion for buying back debt coming due next year
  • Traveloka Indonesia PT, one of Southeast Asia’s biggest online travel startups, has repaid a $300 million private credit loan to a group of lenders that include BlackRock Inc. and Orion Capital Asia
  • JPMorgan Chase & Co.’s leveraged finance desk and Goldman Sachs Group Inc.’s private credit team are among the firms in discussions to lead a $1.05 billion financing for metal and hardware producer ASC Engineered Solutions
  • KKR & Co. has held talks with a number of private credit funds for a debt package of at least A$800 million to support its bid for Perpetual Ltd.’s corporate trust and wealth management units
  • Apollo Global Management Inc., KKR & Co. and Stonepeak may inject billions of dollars into a joint venture that will help fund Intel Corp.’s semiconductor fabrication facility in Ireland
  • TGI Fridays is working with Guggenheim Partners to explore ways to address its debt as the restaurant chain contends with weakening sales
  • Private equity firm IK Investment Partners Ltd has launched the sales process of French private tutoring and home cleaning business Domia Group
  • Tikehau Capital and Flow Capital are forming a partnership to capitalize on emerging opportunities in alternative investments in Asia and globally
  • Private credit firms are considering providing financing for Goodyear Tire & Rubber Co.’s potential sale of its off-road business
  • EQT AB is tapping a group of direct lenders for around $1 billion of debt to help finance its acquisition of Avetta LLC at one of the cheapest rates seen in the private credit market

Fundraising

  • Dubai’s stock exchange is dipping its toes into the $1.7 trillion private credit market with a new platform it says would make it easier for local companies to raise such debt
  • Golub Capital announced the final close of its sixth credit opportunities fund, GEMS Fund 6, L.P., with $2 billion of investable capital
  • PAG is seeking $2.5 billion for its latest Asia-Pacific direct lending fund, tapping into growing investor demand for private credit
  • Hong Kong-based alternative credit manager Tor Investment Management has raised $310 million for its third Asia opportunistic private credit fund, seeking to take advantage of the growing popularity of the asset class

Job Moves

  • Ares Management Corp. may hire around 10 people for its Japanese business this year, with the company’s Tokyo office expected to start operations by September

Did You Miss?

  • Banks Sell Loans to Private Credit in Balance Sheet Twist
  • Oaktree Cuts Fees on Private Credit Fund After Earnings Decline
  • Restructurings Steady Credit Current, But Defaults Could Tick Up
  • BDCs Are Proactive in Culling Herd of Bad Credits to Manage Risk

©2024 Bloomberg L.P.