(Bloomberg) -- Direct lending fundraising in North America is thriving as investors pile money into the asset class and dry powder dips.
Fundraising for North America-focused direct lending this quarter hit $6 billion, bringing this year's total to $22.6 billion, according to London-based research firm Preqin. That compares to $16.2 billion and $11.5 billion for the first three quarters of 2018 and 2017.
“Appetite for direct lending remains strong,” Tom Carr, head of private debt at Preqin, said in an interview. “As we talk to institutional investors, they continue to tell us that direct lending is one of their key strategies.” Fundraising typically jumps in the fourth quarter and that is likely to occur again in 2019, Carr said.
Cash raised for North American direct lending may top the $24.9 billion raised for all of 2018, and come close to the record $36.3 billion in 2017.
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That comes as fundraising for distressed and mezzanine strategies has taken a hit as managers have struggled to put cash to work. North American-focused distress debt funds have raised $8.5 billion this year, down from $15.8 billion in the same period in 2018, and $18.2 billion in the first three quarters of 2017, according to Preqin.
That contrasts with direct lending, which has seen its level of dry powder dip in North America. As of September their dry powder -- the amount of money funds have received but have yet to invest -- in the region declined to $54.1 billion from $55 billion in December, according to Preqin.
“I think that's a quite important point -- managers are being successful at putting capital to work,” Carr said. Investors remain drawn to direct lending given the “inherent downside protection” of the asset class, which is higher in the capital structure than equity.
“If you're thinking we're late in the cycle, as an investor, then having some of those defensive qualities is quite attractive in an asset class,” Carr said.
To contact the reporter on this story: Kelsey Butler in New York at kbutler55@bloomberg.net
To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Adam Cataldo, Dawn McCarty
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