Private debt fund T&Cs evolve; Asia poised for private credit windfall

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Management fees, preferred returns and carry on private credit funds have evolved to a median 1.5% and 15%, from the 2% and 20% fee structure associated with private equity, according to a Callan Institute study.

The survey of 330 private credit partnerships also found that there has been an increase in tiered pricing depending on fund leverage and commitment amounts, and that first close discounts have become more popular.

The median general partners (GP) commitment to a private credit fund is 1%, with the average slightly higher at 1.4%. A strong GP commitment is important to ensure alignment of general partner and limited partner interests, Callan said.

The median investment period management fee between 2016 and 2023 was 1.5%, with little variation, the research found. Throughout the lifecycle of a private credit fund, the management fee percentage, and what it is a percentage of, steps down. It is typically higher on a larger amount of capital during the investment period, and lower on a smaller capital base following the investment period.

DATA WATCH: PRIVATE DEBT IN ASIA

⮞ Singapore’s Seatown Capital Pte. Ltd., India-focused Modulus Alternatives and Europe-based 21yield are expected to launch Asia-focused credit funds soon, Reuters reported.

⮞ There is a “huge financing gap” for smaller companies such as startups in Asia, the report said, quoting 21yield CEO Camille Krejci.

⮞ The new credit funds would launch against a backdrop of startups facing the threat of having down rounds, which there is much stigma around.

FUNDRAISING

– Antares Capital LP closed its second senior loan fund on $6 billion. It will build a portfolio of sponsor-backed senior secured loans to US and Canadian borrowers.

– Marathon Asset Management LP closed its third asset-based lending fund on $1.7 billion. Marathon Secured Private Strategies Fund III will originate loans and capitalize on the increase in secondary loan market opportunities.

– Edmond de Rothschild REIM (UK) Ltd. plans to deploy a further €600 million from a third real estate debt vintage over the coming years. It is targeting a net internal rate of return of 9% unlevered and has a target portfolio loan-to-value ratio of 70%.

– Calmwater Capital, LLC raised $372 million for its fourth real estate credit fund. Most of the committed capital has already been deployed across 38 investments.

– Muzinich & Co. Inc. closed its Asia Pacific Private Debt I fund on $500 million and raised €132 million for its Pan European Private Debt Fund II, Citywire Selector reported. The Asia fund will offer flexible financing to underserved core and lower middle market companies across the region.

DEPLOYMENT

– PGIM Private Capital provided almost $6.7 billion of senior debt and junior capital to more than 120 middle market companies and projects globally in the first half of 2023.

– Monroe Capital Corp. was sole lead arranger and administrative agent on the funding of a senior credit facility to support The Vistria Group LLC's acquisition of Really Great Reading Company LLC.

INDUSTRY NEWS

– Man Group PLC agreed to acquire a controlling interest in US middle market private credit manager Varagon Capital Partners LP. The transaction is expected to close in the third quarter. Varagon has $11.8 billion in assets under management and $15.4 billion of total client commitments.

– Law firms are beefing up their teams with experienced private credit lawyers amid a boom in deals, Bloomberg Law reported. Greenberg Traurig LLC has hired such lawyers in US cities, in Europe and at its Middle East locations, the report said.

– Recruiters servicing private credit firms are also "awash with work," efinancial careers reported, citing Richard Risch, CEO of private markets specialist recruiter The Risch Group. There were 1,211 global private credit moves in the first half of 2023, Risch Group data shows, with much of the hiring activity being around fundraising and marketing.