Large institutional investors are continuing to allocate billions of dollars to private credit funds, as managers look to capitalise on a pullback from retail investors, according to a report by the Financial Times.
North American direct lending funds targeting institutional capital raised at least $16bn in the second quarter to 25 June, according to Preqin data analysed by the Financial Times. The period marked the second-strongest quarter in four years for fundraising by closed-end direct lending vehicles.
The fundraising momentum comes despite recent defaults, concerns over exposure to the software sector and rising scrutiny of retail-focused private credit funds. Several large managers, including Apollo and Morgan Stanley, have restricted withdrawals from vehicles targeting wealthy individuals and retail investors after receiving more than $22bn of redemption requests in the second quarter.
CPP Investments’ David Colla said retail investors had pulled back as they reassessed return expectations for loans made in 2021 and 2022, but added that institutional capital was moving in to fill the gap.
Major private markets firms including Blackstone, Ares Management, BlackRock’s HPS Investment Partners and Apollo Global are currently marketing new flagship private credit vehicles. Apollo reportedly brought forward fundraising for its latest direct lending fund by six months to capture demand.
Institutional investors are being drawn by more conservative capital structures, tighter documentation and wider pricing on new deals. Higher interest rates are also expected to support returns from floating-rate private debt.
Recent commitments include up to $375m from Maine’s state pension plan to Blackstone’s latest direct lending fund and a proposed allocation of up to $600m from New Jersey’s investment arm to vehicles managed by Golub Capital.
