The private debt asset class has now surpassed $1 trillion in AUM and continues to quickly approach the size of the public leveraged loan and HY bond markets in the US. Continually low interest rates, subdued default rates, and a broader pivot toward alternatives continue driving investors into private debt strategies. Though fundraising has posted strong results in recent years, the amount of available capital (dry powder) in private debt funds has fallen. Heavily dependent on other private capital strategies and M&A for deal flow, private lenders and debt investors have seen a range of deployment opportunities in the last year.
Chart 13: Private debt market surpasses $1 trillion
Global M&A activity saw a strong recovery in H1 2021, both dealmaking count and value are on pace to approximate or surpass record highs. In total, more than 17,000 deals closed with a combined value exceeding $US2 trillion. A combination of healthy stock market returns and cheap financing encouraged the rush of deals. The bounce back from the pandemic-induced lows in 2020 is continuing to pick up steam, although the recovery has not been evenly felt thus far. Deals are being pursued in the faster-growing sectors such as technology, healthcare, and financial services as well as in some areas impacted by a yearlong lockdown.
Chart 14: Strong bounce in M&A activity
Iron ore prices have fallen thirty percent in just one month and now trade at their lowest levels in over eight months on expectations of lower output and consumption from the world’s largest steel producer. Chinese imports of the key raw material fell to their lowest levels in five years as the government pressures steel mills to reduce production in an aim to tackle pollution levels. Prices could have further to fall yet as Citi estimate prices hitting $US125 by 2022.
Chart 15: Iron ore price sinks on Chinese demand outlook