Private Credit Fund Structuring: New Findings Inform Liquid Demand and Custom Solutions

Understanding Evolution in Private Credit Fund Structuring

Recent studies conducted by the Alternative Credit Council (ACC) in collaboration with Dechert LLP have unveiled significant insights into the ongoing evolution of private credit fund structuring. As this financial sector matures, fund managers are increasingly adapting their strategies to respond to heightened investor demand for liquidity, bespoke investment options, and co-investment opportunities.

The latest report provides an updated analysis from the original 2023 findings, diving deep into how private credit managers are restructuring their fund setups to cater to institutional, retail, and insurance investors. The insights stem from data from 50 private credit managers, overseeing approximately $1.5 trillion in private credit assets, supplemented by interviews with key industry figures.

Key Insights from the Research

1. Surge in Co-Investment Demand: The report shows a remarkable increase in investor appetite for co-investment opportunities. A staggering 92% of managers noted heightened demand, a significant jump from about 70% in 2023.

2. Increased Liquidity Needs: A notable 64% of the respondents reported a rising demand for liquidity, indicating a shift in investor priorities that hadn't been as prominent in previous years. Previously, this figure was around 49%. Now, two-thirds of surveyed managers have implemented at least one investment vehicle that allows periodic redemption options for investors, compared to only half the number in 2023.

3. Modest Leverage Utilization: While 72% of managers reported employing some level of leverage, typically between 1.0-1.5 times net asset value (NAV), this strategy remains conservative and focused. This conscientious approach reflects an industry-tepid attitude towards leveraging risks.

4. Growing Retail Participation: Over half of the surveyed managers now cater to high-net-worth individuals and are actively targeting retail capital for upcoming funds. This opens up more avenues for regular investors to engage with private credit offerings.

5. Usage of Rated Note Feeders: There’s a noticeable trend in using rated note structures as a means to manage insurance capital allocations. The study found that 63% of managers are utilizing these structures for American insurers, with similar interest noted in the European and Asian markets.

6. Preferred Domiciles: Luxembourg, Cayman Islands, the United States, and Ireland continue to be the top choices for fund domiciles. Numerous managers are launching parallel investment vehicles to cater to varying investor preferences.

7. Innovative Fee Models: With competitive pressures mounting in fundraising, about two-thirds of the respondents have adopted tiered management fee structures and are continuously innovating fee models to attract and retain investors.

Industry Perspectives

Jiří Król, Global Head of the ACC, emphasized the key findings of the research, stating, “This research underscores the critical importance of structuring for investors in the realm of private credit. Our findings illuminate how private credit managers are enhancing their products, allowing for tailored investment experiences and efficient risk management.”

Furthermore, Arina Lekhel, a Partner at Dechert, provided insight into the report's implications: “Our 2025 analysis marks a significant turning point for private credit as it solidifies its position as a custom-driven asset class. The innovations being witnessed with evergreen structures, hybrid fund vehicles, and the adaption of tiered fee models signal a fundamental shift in meeting investor demands for liquidity and co-investment, while maintaining the predictable returns often associated with private credit.”

In conclusion, the private credit landscape is deeply interwoven with investor expectations. This ongoing evolution signifies not only a response to current demands but also a proactive approach to shaping the future of private credit products. The insights gained provide a blueprint for understanding the direction in which private credit is headed, thus offering valuable information to investors and managers alike.

For those interested in exploring the intricacies of this report and its implications for future investment strategies, the full report is available for further insight on the evolving private credit landscape.