Key Takeaways
- • Mercer argues that semi-liquid private debt funds, once a niche product for wealth managers, have moved into the mainstream as private debt gains broad investor interest.
- • The article identifies five key areas for fund selection in semi-liquid private debt, which differ from criteria applied to closed-ended private markets funds or open-ended liquid public funds.
- • Mercer advises investors to treat semi-liquid funds like any illiquid private markets investment, despite the potentially misleading nature of the term 'semi-liquid.'
- • Mercer recommends combining multiple managers and strategies to optimize return, diversification, liquidity, and risk management.
Summary
Private debt has moved into the mainstream, attracting a broad range of investors, according to Mercer. Investors have increasingly sought alternatives to traditional closed-ended funds, and the term 'semi-liquid' has become established in investment industry vocabulary. The structure was primarily developed to serve wealth managers and the private wealth channel, but structural shifts in the pensions and insurance industries have also contributed to its growth.
In an earlier Mercer article, 'Considerations for semi-liquid private debt,' the firm outlined the potential benefits of these funds, including flexibility in the speed of deployment and rebalancing, and a relatively lower administrative burden than closed-end funds. That article also cautioned that the term 'semi-liquid' may be misleading, and advised investors to approach these vehicles as they would any illiquid private markets investment.
Having decided to invest, investors must select which funds to allocate to. Because the semi-liquid market is relatively nascent, Mercer notes that several fund selection factors apply to these vehicles that do not necessarily apply to other fund types. The article outlines five key areas for fund selection, which the source presents in detail, including liquidity, valuations, and track records.
Mercer's key takeaway is that, given the growing popularity of semi-liquid funds, investors should carefully design due diligence on potential managers and include criteria beyond those typically applied to closed-ended private markets funds or open-ended liquid public funds. The firm also recommends that investors combine different managers and strategies to balance return objectives, diversification, liquidity needs, and risk management.
In an earlier Mercer article, 'Considerations for semi-liquid private debt,' the firm outlined the potential benefits of these funds, including flexibility in the speed of deployment and rebalancing, and a relatively lower administrative burden than closed-end funds. That article also cautioned that the term 'semi-liquid' may be misleading, and advised investors to approach these vehicles as they would any illiquid private markets investment.
Having decided to invest, investors must select which funds to allocate to. Because the semi-liquid market is relatively nascent, Mercer notes that several fund selection factors apply to these vehicles that do not necessarily apply to other fund types. The article outlines five key areas for fund selection, which the source presents in detail, including liquidity, valuations, and track records.
Mercer's key takeaway is that, given the growing popularity of semi-liquid funds, investors should carefully design due diligence on potential managers and include criteria beyond those typically applied to closed-ended private markets funds or open-ended liquid public funds. The firm also recommends that investors combine different managers and strategies to balance return objectives, diversification, liquidity needs, and risk management.
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