Got Commitment Issues? This Private Credit Trend Isn’t for You.

As the private credit markets mature, some investors are looking to form longer-term or even permanent relationships with their fund managers, industry experts say.

Low fixed-income yields, an aging population, and more experienced investors have resulted in an outgrowth of permanent, evergreen, and long-term fund structures in private credit. Private credit managers say that trend is likely to continue as the industry continues to grow.

私人信贷市场的繁荣开始在巨大的金融危机之后，当时银行不再能够使用他们的资产负债表来贷款。“银行在巨大的金融危机之后真正退回了这项业务，”私人信贷公司Medalist Partners的首席运营官和总裁Michael Ardisson说。

As a result, the private credit market has grown “astronomically,” according to Emma Bewley, head of private debt and uncorrelated strategies at outsourced chief investment officer firm Partners Capital.

“That disintermediation of the traditional banking model in the middle market lending has seen a huge increase in the amount of private capital in the space,” she added over Zoom. “With that you get innovation in how fund structures are set up.”

In the wake of the Covid-19 outbreak, Ardisson said banks have once again pulled back from lending, creating an opening for private credit funds. Traditional lenders are “extremely cautious right now,” Ardisson said by phone. “They’re going vanilla, cookie-cutter, and squeaky clean.”

Ardisson’s firm Medalist Partners is currently in the process of raising its third fund, which will have an evergreen structure. In the past, Ardisson and his team offered funds with three-year commitments and two-year harvest periods. But investors wanted the option to stay in the fund, Ardisson said. This third fund, which is targeting $500 million in commitments, will fill that need by allowing investors to stay in as long as they like.

“There’s no liquidity mismatch to worry about and no forced redemption,” Ardisson said. “Investors can get paid out or just keep recycling.”

Private credit firm Star Mountain Capital is similarly offering investors a long-term fund, according to the firm’s founder and chief executive officer Brett Hickey.

“Investors said, ‘We want something that we can get our money deployed and keep it deployed but have some liquidity optionality for the future,’” Hickey said by phone Friday.

In his view, the reason investors are looking for longer-term funds is three-fold. “I think investors are getting better at looking at data and they realized that trying to time the markets is extraordinarily difficult,” Hickey said. “People tend to pile in late and lose money, and then they tend to exit early.”

Another driver behind these longer-term fund structures, Hickey say, is the need for institutions to serve aging populations. As pensions, insurance companies, and family offices prepare for a growing number of constituents to retire, they’re looking to ensure investment protection and yield.

“固定收益ly attractive where you can hopefully protect your base capital where you don’t have to liquidate your portfolio,” Hickey said.

Finally, Hickey said that longer lock-up periods can be a better fit for the underlying businesses that private credit funds invest in. These businesses want “flexible” capital that doesn’t require investors to “cut corners” to get liquidity on time, Hickey said. “The more long-dated your fund is, the more liquidity you have.”

但是，这些基金结构并非没有挑战。Ardisson表示，当常绿基金决定采取新资金时，基金经理必须为投资组合中的资产分配价值。“要么你要稀释某人或标记它太高，”他说。这使得奖章主义者决定不允许新投资者进入基金。

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Bewley在市场上有不同的接受。她说，她没有看到可供投资的常绿资金的数量巨大增加。但是，她看到更多的资金基金，偏离私人信贷的传统三年至五年的投资期。据屈郎说，资金上有一个较短的投资期，希望利用市场脱位。

“We believe there will be a number of opportunities coming in rescue lending where we can deploy capital. These loans will be refinanced quickly,” Bewley said. “That was one way that you saw managers looking to raise capital last year.”