Private Credit Funds Adapting to Rising Demand for Liquidity

Private credit funds are being structured in such a way that investors can start having greater access to liquidity, newly released research has found.

According to a report by law firm Dechert and the Alternative Credit Council – a global association representing asset managers in the private credit and direct lending space – 66 per cent of private credit managers now operate at least one vehicle allowing investors periodic redemptions.

The report is based on data from 50 private credit managers, representing $1.5tn (£1.1tn) in assets, with 64 per cent of respondents saying investor demand for liquidity is rising, up from 49 per cent two years ago.

“Managers who can offer enhanced liquidity, including evergreen vehicles, alongside customised products, flexible fee models and co-investment opportunities are positioning themselves to meet the nuanced demands of institutions, insurers and high-net-worth clients,” said Claire Bentley, partner at Dechert. “Effective fund structuring is at the heart of private credit’s evolution.”

John Convery, managing director at Oak Hill Advisors, notes in the report that evergreen structures with built-in liquidity are gaining traction, but that the key issue remains “the interplay between structure and the ability to offer liquidity”.

The report also found that 57 per cent of surveyed managers already have retail clients, with 64 per cent considering targeting retail capital in upcoming funds. However, the growth in retail is mainly driven by high-net-worth individuals and “semi-professional” investors, rather than by mass retail.

“There’s been a fundamental shift, the democratisation of private credit is now driving sponsors with smaller assets under management to launch retail-accessible strategies. It’s no longer just the domain of the mega-firms,” commented Jeffrey Arek, managing director at Apollo Global Management, in the report.

Meanwhile, regulatory reform across the industry is on the radar of European investors, with updates from the UK and EU eagerly expected.