Private debt’s inherent liquidity attracts evergreen managers
Private debt has been one of the most popular asset classes for managers launching semi-liquid, or evergeen funds.
In the US, business development companies primarily focused on lending have seen significant interest, reaching $143bn (£113bn) in value by the end of 2023, according to Preqin.
And in Europe, several managers have recently rolled out private credit funds targeting wealthy investors. For many, private credit is the first asset class they launched a semi-liquid strategy in.
For example, Carlyle recently announced the launch of a European private credit strategy that offers quarterly redemptions to investors. Goldman Sachs also rolled out a credit fund for the wealth market, raising more than €550m.
Read more: Carlyle launches private credit fund for Europe’s wealthy
For asset managers there can be much less volatility in a private credit evergreen strategy, according to Kirsten Bode, co-head of private debt, pan-Europe, at Muzinich.
Muzinich launched an AI-backed semi-liquid private credit fund last October named MLoan.
In Bode’s opinion, the regular interest payments that you can get on credit investments can make meeting liquidity requirements in semi-liquid strategies a little easier.
“The self-liquidating profile of private credit makes this asset class particularly suitable for open-end structures, in that this results in a natural inherent level of liquidity in the fund which can support potential redemptions,” commented Kathryn Saklatvala, head of investment content at consultancy Bfinance.
Bfinance found that just over half of open-ended private credit funds rely mainly on the inherent liquidity and new investor subscriptions to meet potential redemption requests.
Others use additional mechanisms, like using leverage or investing a portion of the fund in more liquid assets.
Read more: Goldman Sachs launches private credit fund for wealth market
“While the underlying nature of private credit is sufficient to support a certain amount of redemption activity, it is important for investors to ensure that the tools and mechanisms available to support liquidity are appropriate to the liquidity commitments/expectations and are suitable for the potential liquidity needs of the fund’s LPs,” Saklatvala added. “Most importantly, managers and investors should not be reliant on a scenario of ongoing net inflows.”
The regular income that can be provided by private credit funds and the inherent liquidity is also attractive from an investors’ point of view.
“From the individual investor perspective, a semi-liquid private credit structure offers scope to combine liquid and less-liquid credit assets into a single portfolio in a way that wouldn’t be possible in a traditional, closed-end private debt fund,” said Greg Myers, managing director at Alter Domus. “This means investors have a wider range of opportunities to reduce volatility and enhance returns and yields from credit portfolios.”
Read more: Asset managers respond to more demand for private debt liquidity
In the last five years, the total number of evergreen funds has doubled to 520, according to Preqin, with high-net-worth investors seeking greater access to private markets overall.
“For private credit managers, private wealth is becoming an increasingly important contributor to the investor base. Finding ways to open illiquid private credit assets to individual investors by offering some liquidity has the potential to unlock significant new pools of capital for private debt managers,” Myers added.