Private Debt Funds: What They Are and Trends under Interest Rate Hikes
April 12, 2024
KURODA Koichi, HASEBE Akira, ITO Satoshi, IKEDA Daisuke
Financial System and Bank Examination Department
Abstract
Private Debt (PD) funds are those that specialize in providing loans mainly to middle-market firms with low creditworthiness. Their assets under management (AUM) have expanded mainly in the U.S., as their borrower-investor bases have broadened, against the background of growing investment needs in the low interest rate environment and the strengthening of financial regulations after the global financial crisis. However, with the recent interest rate hikes in the U.S. and Europe, both the average time required to raise new funds and concentration in major PD funds have increased, and the amount of fundraising for new funds has declined. In Japan the market size of PD funds is extremely limited relative to the U.S. and Europe. Potential risks of PD funds include opacity due to lack of disclosed information, the interconnectedness within the financial system, the accumulation of vulnerabilities associated with rapid credit growth, and the liquidity risk of open-end funds. It is necessary to pay close attention to these developments, including their impact on the efficient allocation of resources for sustainable economic growth in the longer run.
Notice
The Bank of Japan Review Series is published by the Bank to explain recent economic and financial topics for a wide range of readers. This report, 2024-E-1, is a translation of the Japanese original, 2024-J-3, published in April 2024. Views expressed are those of the authors and do not necessarily reflect those of the Bank.
If you have any comments or questions, please contact Financial Institutions Division III, Financial System and Bank Examination Department (E-mail : emu-.fsbe51_post@boj.or.jp).