Institutional investors now make up the second largest category of lenders to small and medium enterprises (SMEs), behind banks.
Furthermore, the majority of these investors are ‘very likely’ to increase their allocation in their portfolios.
These are the main findings from a survey conducted by securitisation software provider TradeTeq.
Regulation and compliance impede private debt market, say professionals
The study found that institutional investors have overtaken alternative lending platforms as the secondary source of SME funding.
Almost a quarter (24.7%) of SMEs said they source their funding for new projects from institutional investors, which is half the level of bank funding (49.3%).
The survey also found that more than half (54.4%) of institutional investors were ‘very likely’ to decrease their portfolio allocation of commercial property in favour of private credit.
Risk likely to increase in private credit, predicts Moody’s Investor Services
“Previously, institutional investors took a more cautious approach to investing in MSMEs and startups, but we’re now seeing them display a greater appetite for risk,” said Mattia Tomba, head of international markets at Tradeteq.
“At the same time, the businesses are meeting stricter compliance criteria of the lenders and are therefore able to benefit from lower borrowing costs.”
The survey canvassed 200 private credit professionals during March 2024.
