13 Dec 2023

Private equity derisks debt and reduces leverage multiples

  • Over half (54%) of private equity fund managers surveyed indicated that senior bank debt/term loan A finance was their most-used financing option in the last 12 months.
  • Around half (45%) of GPs said their leverage multiples had reduced by more than 1X EBITDA.
  • Compared to last year, 56% of GPs have seen a reduction in active lenders and 87% reported encountering more covenants or tighter terms of financing.
  • This reflects the more pragmatic view private equity is taking more generally – including towards deal valuations and M&A – which will be explored in Investec’s upcoming Private Equity Trends 2024 Report.


Private equity fund managers are shifting towards lower-risk bank loans and seeing leverage multiples come down amid rising interest rates, new research by Investec shows.

The bank’s survey of around 150 General Partners (GPs) found that senior bank debt/term loan A finance was the most-used financing option over the last twelve months for more than half (54%) of respondents. The appeal of this type of financing comes from the ability of banks to provide fewer turns of leverage at lower margins, helping GPs manage costs at a time when the overall cost of capital is rising.

Investec’s research also shows a reduction in the level of debt used by GPs in their financial strategies. Three-quarters of managers (73%) said their leverage multiples for new deals had come down compared with 12 months ago, with 45% reporting a decrease of at least 1x EBITDA.

This could be the result of private equity taking a more prudent approach to debt, a reflection of the availability of higher-risk debt or a combination of the two.

Over the past 12 months, more than half (56%) of GPs noted a reduction in the number of active lenders, while almost all (87%) reported experiencing more covenants or tighter terms on financing.

Helen Lucas, Co-Head of UK Origination - Direct Lending at Investec, said: “GPs are rightly becoming more conservative in their approach to debt — a sign of industry pragmatism. While private equity doesn't yet anticipate a return to the abundant and less discerning debt supply enjoyed in 2021, we see this as a normalisation of activity as opposed to a slump. Although the overall pool of active lenders is smaller, Investec remains committed to offering a diverse range of products and services to private equity that span the capital structure. As attitudes towards debt evolve, we take a proactive approach in providing tailored and flexible facilities to meet the ever-changing needs of the industry — irrespective of market conditions.”

The research forms part of Investec’s upcoming Private Equity Trends 2024 Report. Formerly known as GP Trends, Investec’s annual report on the private equity market has been running for more than 12 years. The next report, scheduled for publication in January 2024, will take a holistic view of the market – looking at the latest trends in fund finance, M&A and leveraged finance as well as progress on ESG and diversity.

The research will consider how the increased pragmatism by industry players is playing out in approaches to fundraising, valuations, M&A, and other areas.