A thriving asset class that has defied downward cycle forecasts and a slowed market momentum. Demand and performance is strong, though fund managers are facing more competition and higher risks, as part of ever growing transaction volume. Regulators too are closely watching developments. As assets in private credit strategies edge toward $2trn, the space continues to innovate via more diverse strategies and structures. Institutional investors, particularly pension funds, have been willing to assume greater credit and illiquidity risk in exchange for higher returns in private credit.
With the cost of acquisition debt rising and a more uncertain dealmaking environment, it seems private equity firms are searching further afield for leverage. NAV-based loan requests are on the rise, with many of the top tier PE firms investigating how they can use the structure to boost their liquidity.
- Deutsche Bank AG is launching a new investment manager DB Investment Partners (DBIP) targeting private credit opportunities on behalf of both institutional clients and high net worth investors, according to a report by Bloomberg. The report cites a statement released by the bank as confirming that DBIP will invest in corporate, real estate, asset-based, infrastructure, and renewable finance lending opportunities, among other private debt strategies.
- Other banks have also made moves into the private credit space this year, including JPMorgan Chase & Co, which invests from its balance sheet, and Societe Generale SA, which has plans to raise a €10bn fund in partnership with Brookfield Asset Management Ltd.
- TwentyFour Asset Management is making a move into the booming private credit space, with the British firm set to launch its debut fund, a Europe-focused vehicle, later this year, according to a report by Bloomberg.
- 64% of fund managers have either set up an evergreen capital structure or plan to do so in the next 12 months.
- Private credit will see the biggest increase in allocations in 2023, with 56% of investors are looking to increase their investments in Private Credit.
- 85% of fund managers agree private credit earnings could equal or surpass equity earnings in the next 12-24 months.
- Funds are prioritizing direct lending as their top deployment vs other private credit strategies.
The lack of transparency throughout the booming private credit market could breed risk which, has pushed jurisdictions to amend their regulation and vehicles. Luxembourg has not been immune to this, however, given the depth of expertise, Double Tax Treaty network and ease of accessing necessary services, it’s become a stable home for any structure and why, it’s become the ‘go-to’ jurisdiction for many private equity and credit funds who’ve recently established special-purpose vehicles (SPV) and offices in Luxembourg.
The United Kingdom is the largest center of asset management in Europe and an essential hub for investment activity. The UK is also providing many growth opportunities for managers looking to establish funds via a UK structure. Furthermore, the Qualifying Asset Holding Company (QAHC) offers investors in funds, a UK alternative with added tax benefits. as designed to make it easier for institutional investors and funds to use UK companies in asset-holding structures across a range of private market investment strategies.
- How can private credit funds take advantage of increased LP appetite, the reticence of the traditional loans space and new innovation?
- What are the typical fund structuring considerations?
- What sort of vehicles should you be using for your first or second fund launch?
- Are there jurisdictional opportunities where regulations are relaxing to give way to more private credit?
- Next steps for AIFMD and the arrival of stricter rules around debt funds – what does this mean for the European credit space?
- After fund administration, should we outsource loan administration?
- What’s the best private credit back-office tool for Investor reporting?
- How have investor due diligence process changed as investors look more intently at credit strategies?
Whether you are a small or large investment fund that wishes to outsource administration, compliance/ regulatory reporting, set up a back office for your fund in various jurisdictions or establish a special-purpose vehicle (SPV), talk to us.
© 2020 TRUSTMOORE
ISAE3402 CERTIFIED