As private credit continues to attract investors, the asset class’s backers will continue to file in from all sides of the stage. In particular, more platforms are emerging for high-net-worth individuals to invest in private credit, a sign there is demand to be met. And what financial firm doesn’t love product expansion?
The Carlyle Group and Oppenheimer Funds are launching a joint venture next year that will aim to lure high-net-worth individuals into the private debt asset class. The JV will underwrite opportunistic credit, direct lending, distressed and structured credit investments across US, Europe and Asia.
This isn’t the first such partnership Oppenheimer has arranged, suggesting the retail market is worth pursuing even further. In September 2015, the New York-based firm inked a deal with Apollo Global Management in which the latter would sub-sub-advise the Oppenheimer Global Strategic Income Fund, including investments in structured credit and mid-market loans.
Toronto-based Bridging Finance launched a fund targeting high-net-worths earlier this month, which the firm expects will raise between C$500 million ($400.8 million; €340.04 million) and $1 billion. With a North American mandate and the capability to do both senior and mezzanine debt, it is virtually identical to the commingled funds large institutional investors commit money to.
A KKR survey of investors early this year showed that the ultra-high-net-worth individuals (those with $30 million or more of investable assets) and the mere high-net-worth individuals ($10 million-$30 million of investable assets) had vastly different portfolio configurations. Almost half of the portfolios of the super-rich were in alternative investments, with private credit accounting for 6 percent of their fixed-income allocations (which in turn only amounted to 15 percent of total investments).
That hints at plenty of room for growth. Which is good, because in addition to the above products, there has been an explosion of interval funds, a cross between closed-end debt vehicles and hedge funds. There are 38 active companies, seven of which were declared effective by the US Securities and Exchange Commission this year, 12 of which focus on credit investments. Of the 19 awaiting approval, 15 have credit as a part of their strategies.
Business development companies have been around for decades, though in the early 2000s when the first BDCs went public, few people knew where to put the investments in their portfolio. Since many are traded on the open stock market, the vehicles are hardly catered exclusively to high-net-worth individuals, though.
Much of this product growth aimed at wealthy individual investors shouldn’t come as a surprise and has been in the offing for some time. A 2015 report from PwC predicted a 13 percent compounded annual growth rate for high-net-worth individuals (those with more than $1 million, in its definition) and the mass affluent (those with $100,000-$1 million).
As institutional investors have rearranged their portfolios to include more space for private credit, it seems high-net-worth investors are doing the same.