PRIVATE credit funds are drawing in record sums of capital from everyday investors, offsetting a slowdown from large institutions as wealthy individuals are lured in by the higher returns on offer.
Affluent individual investors in the US have pumped US$48 billion into private credit funds in the first half of this year, already surpassing the entire haul in 2023 and on pace to eclipse 2024’s high-water mark of US$83.4 billion, investment bank RA Stanger has said.
European investors are also diving in, with assets in so-called evergreen private debt funds across the continent, more than doubling from a year ago to 24 billion euros (S$36.1 billion) at the end of June, said consulting firm Novantigo.
The inflows underscore the growing importance that major private investment groups are now placing on individuals; analysts at rating agency Moody’s are calling it “one of the biggest new growth frontiers in the industry”.
It also represents just the tip of the spear for groups that had lobbied heavily to open the broader US retirement market up to private equity and credit. Their push culminated in US President Donald Trump’s executive order in August that paved the way for their broader inclusion in 401k plans.
Brad Marshall, Blackstone’s head of private credit, said: “The growth is coming from a very under-penetrated market. Private markets offer investors a premium (over) what they can get in public markets.”
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Fundraising in traditional drawdown, private credit funds has slowed alongside a broader downturn for the leveraged buyout industry, which has struggled to return capital to investors in the years since the Covid-19 pandemic and has, in turn, suffered weaker inflows.
Data from Preqin shows that private credit vehicles pitched to large investors, including endowments and pensions, have raised successively less every year since hitting a peak in 2021.
New contributions from wealthy individuals, by contrast, have accelerated. They have been spread across a handful of different vehicles, complicating comparisons between firms.
The Stanger data focuses on non-traded business development companies as well as interval funds, which offer redemptions at set periods. Collectively, they are known as evergreen funds, because they do not wind down on a specific date in the future. Investors can also continuously put more money in.
Flows into the vehicles were stable during market swings earlier this year, after US President Donald Trump launched his tariff blitz against most of the US’ largest trading partners. That has bolstered confidence that demand from individuals is durable, and that smaller investors will not race to redeem at the first sign of turbulence.
John Sweeney, who runs wealth solutions at Brookfield, said: “It reinforced what we’d want to see – people not running from alternatives, but looking at alternatives and saying there was stability there.”
Blackstone has long dominated the market, although it is facing intensifying competition from rivals such as Apollo Global Management, Blue Owl, Ares Management and BlackRock’s HPS Investment Partners.
Blackstone’s private credit fund, known as Bcred, has drawn in US$6.5 billion so far this year, and US$11.7 billion over the past 12 months. On the average day markets are open, individual investors are placing more than US$50 million of orders for the fund, the Stanger data shows, putting it at the top of the pack.
Those inflows, supercharged by leverage, have pushed the size of Bcred up more than 50 per cent in the past two years, to US$73 billion in June.
Others are catching up. Apollo’s offering, Apollo Debt Solutions, has raised US$6.4 billion over the past year, and two large funds from Blue Owl have taken in roughly US$7 billion. Ares’ main offering for wealthy individuals, the Ares Strategic Income Fund, has raised US$5 billion.
A smaller investment management firm, Cliffwater, has won massive share among independent wealth managers. Its fund has gone toe-to-toe with Blackstone, raising nearly US$11 billion in the past year, and now stands at more than US$30 billion.
Blackstone was earlier than many of its rivals as it charged into wealth management offices, pitching major players such as Morgan Stanley and UBS, as well as the independent advisers that direct how millions of Americans save for retirement.
That resulted in near total market share for its product among other business development companies (BDCs) that are not publicly traded, sitting just below 90 per cent in 2021, noted Stanger. While it has remained the top draw for wealth managers, that figure has fallen to 28 per cent among similar vehicles amid a wave of new fund launches.
Raj Dhanda, global head of wealth management at Ares, said wealth managers were keen to expand the number of funds they could pitch clients, given that Blackstone’s “share of the market was probably uncomfortably high”.
But he noted that it was still a small set of asset managers drawing in investors. “After a small group of the leading global alternative managers, the flows fall off considerably,” he said.
European private markets are also seeing a surge of interest from individual investors, sparking a wave of new fund launches across the continent. Novantigo counts 37 private credit evergreen funds in the market, up from just six in 2022. Ares and Blackstone have both been fundraising, and HPS is launching its own vehicle, according to a filing.
Private credit itself has moved into the mainstream after post-crisis regulations limited lending by the traditional banking system. Major asset managers stepped into that void, lending directly to businesses and consumers.
The rapid pace of inflows has caused consternation from some inside the industry, even as their management fees swell. The inflows have materialised alongside a broad market rally, which has led to stiff competition among investors in private and bank syndicated loans. That has weighed on returns, as private lenders compete aggressively to win deals.
“It’s a tricky investment environment, driven by the imbalance between supply and demand of capital,” Joshua Easterly, a top executive at Sixth Street, said on an earnings call this summer.
“Competition is elevated, and it’s increasingly difficult to generate outsized returns.” FINANCIAL TIMES
