Three trends emerging in customization of $1.5T private credit funds market

AIMA affiliate study reveals how the global asset class is evolving.

The private credit market is seeing strong interest from both fund managers and investors and the once-niche market is now worth around $1.5 trillion.

Private credit fund managers are increasingly providing investors with customized exposure to the market and some key trends are emerging, according to a new report from the Alternative Credit Council, an affiliate of the Alternative Investment Management Association, and global law firm Dechert.

“Private credit has emerged as one of the most significant global asset classes as it can offer predictable returns, flexibility, and resilience in the face of market volatility,” said Gus Black, partner at Dechert. “The research highlights increasing investor demand is coupled with a growing need for customization and flexibility when raising capital.”

Three trends have identified in the report, In Partnership: Trends in Private Credit Fund Structuring:

Greater investor demand for structures that provide customized exposure to private credit strategies
Growing appetite for hybrid and evergreen funds
Growing appetite of private credit fund managers to raise capital from retail clients

Eight in ten private credit fund managers surveyed said that they are managing funds through a combination of commingled funds and other vehicles, with 95% offering managed accounts for single investors.

CUSTOMIZED OPTIONS

Funds are offering various options for investors with a range of liquidity profiles and there’s a growing role played by hybrid or evergreen fund structures. Four in ten include levered and unlevered sleeves and another 12% are considering offering such flexibility for future fundraising.

More than two-thirds of respondents expect greater demand for co-investment from investors and the report also highlights the value placed on the flexibility and support efficient capital raising provided by evergreen funds for investors seeking ongoing exposure to private credit.

Half of the private credit fund managers that participated have funds that offer investors some right to redemption and 48% expect investor demand for liquidity to increase.

“Private credit is a permanent fixture in the allocation models of many global investors,” said Jiří Król, global head of the Alternative Credit Council. “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.”