The Rise of Private Wealth in Private Credit
One of the most significant trends through the 2020s has been the increase in the number of Private Credit funds specifically targeting private wealth.
This is a two-way street.
High-net-worth individuals (HNWI) and family offices are looking to preserve and grow their wealth outside traditional investment options. In tandem, GPs face slower-paced fundraising from LPs, leading them to seek alternative funding.
And '40 Act funds have emerged as a cornerstone of these shifts.
The Growing Popularity of '40 Act Funds in Private Wealth
'40 Act funds have allowed HNWIs to access private credit investments.
Data from With Intelligence reveals that debt-focused ’40 Act funds saw asset growth to $400bn in Q1 2024, a 24.5% increase from $322bn in 2023. Of the $400bn, the vast majority - $340bn - is held in business development companies (BDCs), with interval funds accounting for $49.4bn and tender offer funds holding $10.4bn.
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The Dominance of BDCs in Private Credit
AuMs in BDCs grew by 22.2% from $278bn in Q1 2023 to $340bn in Q1 2024.
AuM in perpetual-life non-listed BDCs in the market has also risen. With Intelligence tracked the growth of assets held in perpetual-life non-listed BDCs and discovered a 50% year-on-year increase, from $85bn in 2023 to just under $128bn in Q1 2024. This growth accounted for 69% of the $65bn growth of the BDC market over the past year.
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The Global Appeal of BDCs
Private BDCs, which can be sold to accredited investors and can be perpetual or finite, have also become a popular route for US GPs to attract foreign capital without having to set up feeder funds.
Jefferies Credit Partners launched a private BDC last year with a $625m anchor investment from the Abu Dhabi Investment Authority.
The Appeal of Private Credit for Private Wealth
There are several reasons for the increase in private wealth clients choosing to invest in private credit.
Private credit typically offers a premium over traditional fixed income, as well as further diversification within fixed income.
Private credit has also been taking market share away from the more liquid credit market, meaning that investors wanting a broad, representative exposure to credit must include more private credit.
The underlying loans in a BDC are mostly floating rate, providing some protection against changes in interest rates.
Blackstone Leads the Way
One of the standout players in this space is the Blackstone Private Credit Fund (BCRED), the first-ever perpetual-life non-traded BDC.
With $56.8 billion in assets, BCRED is the largest BDC, dwarfing publicly listed counterparts such as Ares Capital Corporation, which has $24.3 billion in AuM.
BCRED's success has set a new standard in the industry, demonstrating the appeal of perpetual-life structures to GPs and private wealth clients.
| Fund | Manager | Type | Term | AuM (Mar 2024) |
|---|---|---|---|---|
| Blackstone Private Credit Fund | Blackstone | Non-traded | Perpetual-Life | $56,837,690,000 |
| Ares Capital Corporation | Ares Management | Listed | Listed | $24,256,000,000 |
| Blue Owl Credit Income Corp | Blue Owl | Non-traded | Perpetual-Life | $19,833,938,000 |
| FS KKR Capital Corp | FS/KKR | Listed | Listed | $15,152,000,000 |
| Blue Owl Capital Corporation | Blue Owl | Listed | Listed | $13,329,632,000 |
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The Concentration of Assets Among Top Managers
The top 10 managers account for nearly $250bn in AuM across BDCs, interval funds, and tender offer funds.
In April, With tracked $198bn of private credit fund closes in 2023, over 75% of the money went to managers established before the 2008 Great Financial Crisis.
With's latest Private Credit Fundraising Report further highlights investors' confidence in established managers.
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Challenges Facing Private Credit and Private Wealth
While the growth of private wealth is impressive, it has challenges. '40 Act funds adhere to strict regulations designed to protect investors, which can limit how flexible a GP can be.
They face a delicate balance in ensuring transparency and maintaining investor protection while delivering competitive returns.
Liquidity is also a concern. Although interval and tender offer funds provide some liquidity, they cannot match the liquidity levels of more conventional assets.
This illiquidity could become a significant drawback for private wealth clients, particularly if they need to access their capital quickly.
GPs will also need a lot more resources to accommodate private wealth investors and have been building out private wealth teams accordingly in recent quarters.
With’s People Tracker has seen a significant increase in private wealth hires, with Pemberton, Park Square, PGIM, PAG, and Partners Group contributing to this momentum by hiring in private wealth over the past year.
The Future of Private Wealth in Private Credit
The future of private credit in the private wealth sector appears bright, but it will require careful navigation of the above-mentioned challenges.
The ongoing search for diversification will likely drive continued growth.
As traditional markets remain volatile, private credit will continue to offer a compelling alternative for private wealth clients.
Economic conditions will also play a critical role in shaping the future of private credit.
Higher-for-longer interest rates could impact the cost of borrowing, and thus creditworthiness for portfolio companies.
However, the ability of private credit to deliver steady, predictable income will likely continue to make it an attractive option for private wealth clients.
Private Credit Fundraising 2024
The full Private Credit Fundraising Report H1 2024 is available on the With Intelligence platform. Providing insights on geographical breakdowns, strategy splits, fund series, and more.
Schedule a demo today and discover how With Intelligence's data and insights will help you raise, allocate, and service funds.