Large investors are increasingly opting for bespoke arrangements to access private credit deals, as sponsors offer more flexibility in a challenging fundraising environment.

Single-managed accounts – also known as “fund-of-one” structures – can be structured to suit specific business objectives and often offer more flexibility in terms of fees and holding periods. They can also be set up for tax efficiencies specific to a particular investor.

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“Over the past 12 to 18 months we’ve seen a significant increase in the number of bespoke arrangements being put in place for large, strategic investors,” Matthew Keogh, investment funds partner at law firm Linklaters, told Alternative Credit Investor.

“These have included a range of single managed accounts and side cars which have been designed either to sit alongside a primary fund or to enable the investor in question to gain access to deals across a range of products using investment criteria or economics tailored for the investor.”

Private markets fundraising has slowed in recent years, partly due to the denominator effect which left many institutional investors over-allocated to alternatives amid public market volatility. Furthermore, a lack of M&A activity has had a knock-on effect on sponsor-backed direct lending, while general macro uncertainty has resulted in caution among some investors.

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Keogh said that the rising demand for bespoke arrangements has, in some cases, “been a reaction to pressure being brought to bear by those investors on primary fund terms” but it mainly reflects “a willingness of sponsors to provide more bespoke solutions for large, strategic investors in a more challenging fundraising environment”.

“As a sector, private credit is particularly well suited to these kinds of arrangements given the way deals are structured and it is quite common for sponsors to bring multiple funds and other accounts into underlying opportunities,” he added.

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