Navigating the Private Debt Landscape

Insights and New Fund Formats

Abstract

We examine the evolution and growing importance of the private debt market since the global financial crisis (GFC). We discuss various types of private debt, highlighting their main characteristics and advantages, particularly regarding the illiquidity premium and the smoothing of returns. Additionally, we explore how new regulations in the European Union are facilitating the democratization of private debt markets, making it significantly easier for retail investors to participate and for private debt to be included in open-ended funds.

1. The private debt market has seen substantial growth since the Global Financial Crisis, with direct lending emerging as the dominant category in Europe and with 40% of deal value allocated to leveraged buyouts and 31% to public-to-private deals.
2. New regulations in the European Union are democratizing private asset investing by removing previous restrictions and expanding the range of eligible assets, making it more accessible to retail investors through open-ended funds.
3. Mechanisms like gating and swing pricing are crucial in open-ended funds with private debt, as they help manage liquidity requirements from subscriptions and redemptions, while ensuring a balanced allocation to liquid and semi-liquid debt to meet the fund's liquidity needs.