Industry research has revealed how private credit fund managers are providing investors with more customised exposure to the asset class than ever before.
The trend is being driven by greater demand for private credit strategies, as well as a growing appetite for hybrid and evergreen funds.
At the same time, managers are looking to raise capital from a greater variety of sources, including tapping into the increasing interest in private credit among retail investors.
These are the key highlights of a new report published by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association, and global law firm Dechert.
Catering to growing demand
The research, which reflects insights from 40 private credit fund managers that represent roughly US$800bn in AUM, just over half of which invest in Asia, shows that private credit has emerged as one of the most significant global asset classes.
Gus Black, partner at Dechert, believes this is due to it being able to offer more predictable returns, flexibility and resilience in the face of market volatility.
“The research highlights increasing investor demand is coupled with a growing need for customisation and flexibility when raising capital,” he explained.
For example, 80% of the private credit managers surveyed manage capital through a combination of commingled funds and other vehicles. And 95% provide managed account structures for single investors.
Even though maintaining such structures entails greater costs for the managers, the research suggests they view this as strategically important given the growing investor demand for a higher level of tailoring.
Further, investor demand for permanent capital allocations to private credit strategies is being met by fund structures which offer partial liquidity. Notably, 51% of respondents have private credit funds that offer investors some right to redemption, while 48% expect investor demand for liquidity to increase.
In particular, found the report, investors who seek ongoing exposure to private credit value the flexibility of evergreen funds, which are also seen to support efficient capital raising and deployment.
Leverage is another area where private credit funds are customising their offering. In the research, 41% of respondents said they include levered and unlevered sleeves, while another 12% are considering offering such flexibility for future fundraising.
“Customised structures play an important role in accommodating this demand for ongoing exposure to private credit strategies, and ensures that investors can tailor exposure according to their risk appetite,” said Jiri Krol, global head of the ACC.
The reach of private credit is also increasing, with the survey showing that two-thirds of managers are either currently, or are considering, raising capital from retail clients for upcoming fund offerings. This compares with the 41% which have retail clients today.
“Private credit is a permanent fixture in the allocation models of many global investors,” added Krol.
Meanwhile, Luxembourg and the Cayman Islands continue to be the fund domiciles of choice for private credit fund managers investing in EU-based private credit assets, with 59% selecting these jurisdictions.