PREQIN QUARTERLY UPDATE:PRIVATE DEBTQ1 2017Insight on the quarter from the leading provider of alternative assets data

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Content includes:

FundraisingFunds in MarketInstitutional InvestorsDry Powder

© Preqin Ltd. 2017 / www.preqin.com2

PREQIN QUARTERLY UPDATE: PRIVATE DEBT, Q1 2017

FOREWORD - Ryan Flanders, Preqin

Eighteen private debt funds reached a fi nal close in the fi rst quarter of 2017, securing just under $20bn. Capital commitments in the quarter were strong, with $7bn more secured than in the same quarter last year, despite fewer funds closing. Private debt globally is coming off the strongest three-month period in the history of the asset class, with $50bn secured across 46 funds in Q4 2016.

Investor appetite has held fi rm for North America- and Europe-focused funds, with both regions seeing eight funds close in Q1, although North America-focused funds secured nearly $2bn more than Europe-focused vehicles. Direct lending funds closed the period with the most vehicles (10) and aggregate capital secured ($11.9bn), while distressed debt funds secured $4.2bn, followed by special situations funds closing on $2.6bn in commitments.

2017 is certainly off to a strong start, specifi cally bolstered by the highly active direct lending segment in the US. Fund managers across strategies are seeing increased and sustained investor appetite for access to all parts of the market at this point in the credit cycle, when a hybrid of private debt strategies are poised to return strong results. Finally, with 284 private debt funds in market globally targeting more than $112bn, competition for investor allocations will remain fi erce for the remainder of 2017.

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All rights reserved. The entire contents of Preqin Quarterly Update: Private Debt, Q1 2017 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Private Debt, Q1 2017 is for information purposes only and does not constitute and should not be construed as a solicitation or other off er, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent fi nancial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Private Debt, Q1 2017. While reasonable eff orts have been made to obtain information from sources that are believed to be accurate, and to confi rm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Private Debt, Q1 2017 are accurate, reliable, up-to-date or complete. Although every reasonable eff ort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Private Debt, Q1 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

p3 Fundraisingp4 Funds in Marketp5 Institutional Investorsp6 Dry Powder

PRIVATE DEBT ONLINE

Private Debt Online is the leading source of data and intelligence on the growing private debt industry and tracks all aspects of the asset class, including fund managers, fund performance, fundraising, institutional investors and more.

Constantly updated by our team of dedicated researchers, Private Debt Online represents the most complete source of industry intelligence available today, with global coverage and all fund managers and investors profi led.

Get in touch today to arrange a demo of Private Debt Online: : info@preqin.com | : www.preqin.com/privatedebt

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FUNDRAISING

Eighteen private debt funds reached a fi nal close in Q1 2017, totalling just under $20bn in capital commitments (Fig. 1), well behind the previous quarter, which saw 46 funds close for a record $50bn. Quarterly fundraising since 2013 has seen an average of 38 funds secure around $22bn in aggregate capital; no other quarter since Q1 2013 has had fewer than 26 fund closures.

North America- and Europe-focused funds each had eight closings in Q1, totalling $11bn and $9bn respectively, and two Asia-focused vehicles closed (Fig. 2).

Direct lending vehicles raised more than half ($11.9bn) of all capital secured by private debt funds closed in Q1 2017, followed by $4.2bn from two distressed debt funds (Fig. 3). Mezzanine accounted for the smallest amount of capital, with $1.2bn raised via four funds, while two special situations funds raised $2.6bn. Private debt funds of funds and venture debt vehicles did not see any closings in the fi rst quarter.

Hayfi n Capital Management’s Hayfi n Direct Lending Fund II was the largest fund closed in the fi rst quarter of 2017 (€3.6bn), and Alcentra Group’s Alcentra European Direct Lending Fund II secured €2.8bn; both are targeting European direct lending opportunities (Fig. 4).

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Source: Preqin Private Debt Online

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Fig. 1: Private Debt Fundraising, Q1 2013 - Q1 2017

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Source: Preqin Private Debt Online

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Fig. 2: Private Debt Fundraising in Q1 2017 by Primary Geographic Focus

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Source: Preqin Private Debt Online

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Fig. 3: Private Debt Fundraising in Q1 2017 by Fund Type

Fig. 4: Five Largest Private Debt Funds Closed in Q1 2017

Fund Firm Fund Size (mn) Type Geographic Focus

Hayfi n Direct Lending Fund II Hayfi n Capital Management 3,600 EUR Direct Lending Europe

Alcentra European Direct Lending Fund II Alcentra Group 2,807 EUR Direct Lending Europe

Carlyle Strategic Partners IV Carlyle Group 2,500 USD Distressed Debt US

Marlin Equity Partners V Marlin Equity Partners 2,500 USD Special Situations US

Cerberus Levered Loan Opportunities Fund III Cerberus Capital Management 2,050 USD Direct Lending US

Source: Preqin Private Debt Online

© Preqin Ltd. 2017 / www.preqin.com4

PREQIN QUARTERLY UPDATE: PRIVATE DEBT, Q1 2017

FUNDS IN MARKET

As at the start of Q2 2017, there were 284 private debt funds seeking an aggregate $112bn in capital. These fi gures are roughly the same as they were in Q1 2016, when 260 funds were targeting $123bn globally.

Direct lending vehicles continue to represent the largest proportions of both funds in market and aggregate capital targeted, with 126 funds seeking $43bn (Fig. 5). Thirty-nine distressed debt funds are in market targeting just over $34bn, while 33 special situations funds seek $16bn in capital.

North America-, Asia- and Rest of World-focused funds have each seen a rise in the number of private debt vehicles in market compared to Q1 2016, while there are six fewer targeting Europe (Fig. 6).

More than three-quarters (77%) of private debt funds in market have been on the road for two years or less. The largest proportion (35%) of private debt funds in market have been on the road for 13-24 months, whereas 24% have been fundraising for six months or less (Fig. 7).

The fi ve largest funds in market account for 18% of total capital targeted within the private debt asset class. GSO Capital Solutions Fund III, the largest fund in market, is currently seeking $6.5bn for distressed debt opportunities in North America (Fig. 8).

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Source: Preqin Private Debt Online

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Fig. 5: Private Debt Funds in Market by Fund Type

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No. of Funds Raising Aggregate Capital Targeted ($bn)

Source: Preqin Private Debt Online

Primary Geographic Focus

Fig. 6: Private Debt Funds in Market by Primary Geographic Focus, Q1 2016 vs. Q1 2017

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Source: Preqin Private Debt Online

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Fig. 7: Time Spent on the Road by Private Debt Funds in Market

Fig. 8: Five Largest Private Debt Funds in Market

Fund Firm Target Size (mn) Type Geographic Focus

GSO Capital Solutions Fund III GSO Capital Partners 6,500 USD Distressed Debt North America

Apollo European Principal Finance Fund III Apollo Global Management 3,500 USD Distressed Debt Europe

Centerbridge Special Credit Partners III-Flex Centerbridge Capital Partners 3,500 USD Distressed Debt North America

HPS Specialty Loan Fund IV HPS Investment Partners 3,500 USD Direct Lending North America

Cerberus Institutional Partners VI Cerberus Capital Management 3,500 USD Distressed Debt North America

Source: Preqin Private Debt Online

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INSTITUTIONAL INVESTORS

Preqin’s Private Debt Online tracks more than 2,500 active investors in private debt. The 10 largest investors currently allocate a combined $76bn to the asset class (Fig. 9). Half of these investors are based in the US, including TIAA, which currently allocates $25.9bn to private debt funds, amounting to 3% of its total assets.

Over the next 12 months, the largest proportion (51%) of active private debt investors will target mezzanine funds, for the second consecutive year (Fig. 10). The proportion of investors targeting direct lending funds over the next 12 months has increased from 36% in Q1 2016 to 42% in Q1 2017, while a slightly larger proportion (46%) of investors will target distressed debt funds.

Over a quarter (27%) of investors are seeking special situations opportunities, followed by smaller groups looking for exposure to venture debt and private debt fund of funds vehicles (5% and 3% respectively).

Europe and North America are likely to remain the most targeted regions for private debt investors over the coming year, as sought by 41% and 38% of investors seeking opportunities respectively (Fig. 11). While North America and Europe attract the majority of investor capital, 18% of investors plan to target private debt investments in Asia over the next 12 months, a two-percentage-point increase from December 2016.

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Source: Preqin Private Debt Online

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Fig. 10: Strategies Targeted by Private Debt Investors in the Next 12 Months

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Source: Preqin Private Debt Online

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Fig. 11: Regions Targeted by Private Debt Investors in the Next 12 Months

Fig. 9: 10 Largest Investors by Current Allocation to Private Debt

Investor Type Location Current Allocation to Private Debt ($bn)

TIAA Private Sector Pension Fund US 25.9

New York State Teachers' Retirement System Public Pension Fund US 8.8

Partners Group Private Equity Fund of Funds Manager Switzerland 7.0

Netherlands Development Finance Company (FMO) Government Agency Netherlands 6.8

KB Insurance Insurance Company South Korea 5.5

African Development Bank Bank Ivory Coast 5.3

California Public Employees' Retirement System (CalPERS) Public Pension Fund US 5.0

FINEP Government Agency Brazil 4.1

Arizona State Retirement System Public Pension Fund US 4.1

Oregon State Treasury Public Pension Fund US 3.6

Source: Preqin Private Debt Online

© Preqin Ltd. 2017 / www.preqin.com6

PREQIN QUARTERLY UPDATE: PRIVATE DEBT, Q1 2017

DRY POWDER

As at March 2017, private debt managers hold more than $196bn in dry powder, up $200mn from December 2016 (Fig. 12). Distressed debt funds hold $66bn in dry powder, the most of any private debt strategy, followed by direct lending ($58bn) and mezzanine ($51bn).

North America-focused funds have $130bn in available capital (Fig. 13). This fi gure is down over $3bn from December 2016, but still accounts for two-thirds of total capital available to the asset class. Funds focused on Europe have added more than $4bn in aggregate dry powder over the same time period, with $55bn currently available for investment. Dry powder levels for Asia- and Rest of World-focused funds declined somewhat, and currently stand at $9.6bn and $1.5bn respectively.

Fig. 14 displays total private debt dry powder versus that of buyout funds since 2008; this puts the private debt market into historical perspective amid recent years of substantial growth. Aggregate dry powder for all private debt strategies remains just under $200bn, and continues to hover at over a third (37%) of the value of global buyout fund dry powder ($530bn).

Oaktree Capital Management still holds the largest amount ($17.0bn) of available capital among private debt managers, followed by GSO Capital Partners ($13.6bn) and Goldman Sachs Merchant Banking Division ($8.3bn, Fig. 15).

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Fig. 14: Dry Powder: Private Debt vs. Buyout, 2008 - 2017

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Source: Preqin Private Debt Online

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Fig. 12: Private Debt Dry Powder by Fund Type, 2008 - 2017

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Source: Preqin Private Debt Online

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Fig. 13: Private Debt Dry Powder by Primary Geographic Focus, 2008 - 2017

Fig. 15: 10 Largest Private Debt Fund Managers by Estimated Dry Powder

Firm Headquarters Estimated Dry Powder ($bn)

Oaktree Capital Management US 17.0

GSO Capital Partners US 13.6

Goldman Sachs Merchant Banking Division US 8.3

HPS Investment Partners US 7.0

Intermediate Capital Group UK 6.0

Hayfi n Capital Management UK 5.9

Ares Management US 4.8

Fortress Investment Group US 4.6

Cerberus Capital Management US 4.0

Centerbridge Capital Partners US 3.4

Source: Preqin Private Debt Online

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private debt universe.

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