Private credit funds now account for a sizeable segment of the closed-end fund market, according to a new study by law firm Seward & Kissel.
The firm analysed more than 75 funds that it has advised over the last two years. It found that 31 per cent of these funds focus on private credit strategies.
“Being smart and innovative are the two key traits of private credit managers that are differentiating their capabilities in an increasingly crowded field,” said investment management partner Kevin Cassidy, contributing author of the study.
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“These are exactly the traits that LPs want in their alternative allocations. We are also seeing market volatility benefit private credit strategies, particularly distressed strategies.”
Additionally, hybrid structures are on the rise, the study found. 11 per cent of the funds analysed were hybrid, with nearly 90 per cent being first-generation funds.
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“There is a significant amount of variation across crossover, evergreen and hybrid funds, presenting an opportunity to better align LP and manager objectives through customisation,” said Cassidy. “The degree of flexibility can be enhanced even further by using a cell or series vehicle. The objective here is that the fund structure is amplifying the manager’s expertise and opportunity set, as opposed to limiting either.”
The research also showed that capital trends varied significantly by fund vintage. First-generation funds on average targeted $450m (£345.8m) as their initial capital raise, with later-generation funds averaging $2bn. The minimum capital commitment was highest for private credit strategies, at an average of $4.3m.
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