Evening Brief – 09.20.23
Customization Key in Private Credit
Investors are increasingly demanding customized investment structures, and more than half of managers are offering investors redemption rights as liquidity concerns rise, according to a new survey conducted by law firm Dechert and the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA).
Four out of five surveyed manage money through a combination of commingled funds and other vehicles. Although commingled funds comprise most private credit offerings, an incredible 95% of companies claim to offer managed account structures for individual investors.
According to the survey, the surge in tailored solutions for LPs has been accompanied by a growing market for hybrid and evergreen funds, as well as an increased desire among private credit fund managers to seek capital from retail clients.
More than 50% of respondents have funds that provide some right of redemption to investors, and 48% expect investor demand for liquidity to increase – with the report finding that investors seeking ongoing exposure to private credit value how evergreen funds can provide flexibility.
Leverage is another area where private credit funds are tailoring their offering, with 41% including levered and unlevered sleeves and another 12% exploring similar flexibility for future fundraising.
“Customized 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,” noted Jiří Król, global head of the ACC.
The report, In Partnership: Trends in Private Credit Fund Structuring, is a collection of responses from 40 private credit managers that collectively manage approximately $800 billion in private credit investments across global markets.
The results reflect an industry with increased fund structure complexity in response to investors’ concerns about liquidity, leverage, and the lifespan of the underlying portfolio.
“The research highlights increasing investor demand is coupled with a growing need for customization and flexibility when raising capital,” said Gus Black, partner at Dechert.