Key Takeaways
- • Mercer outlines five key areas for investors to weigh when selecting a semi-liquid private debt fund, as the market for these vehicles grows and remains relatively nascent.
- • Semi-liquid private debt funds have gained traction as an alternative to traditional closed-ended funds, originating largely to serve wealth managers in the private wealth channel and later supported by structural shifts in pensions and insurance.
- • Mercer advises that due diligence on semi-liquid managers should include criteria beyond those used for closed-ended private markets funds or open-ended liquid public funds.
- • Mercer recommends combining multiple managers and strategies to optimize return, diversification, liquidity and risk management.
Summary
Private debt has moved into the mainstream over the past few years, drawing a broad range of investors, according to Mercer. Demand has increasingly shifted toward semi-liquid structures as alternatives to traditional closed-ended funds, and the term 'semi-liquid' has become firmly embedded in investment industry vocabulary. The structures originated mainly to meet the needs of wealth managers serving the private wealth channel, though structural changes in the pensions and insurance industries have also contributed to their 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 comparatively lighter administrative burden than closed-end funds. That piece also cautioned that the term 'semi-liquid' can be misleading, and advised investors to approach these vehicles in the same manner as any illiquid private markets investment.
Having decided to invest, allocators face the question of manager selection. Because the semi-liquid segment is relatively nascent, Mercer notes that several fund selection factors apply here that do not necessarily arise with other fund types. The article sets out five key areas for fund selection, though the details of those areas are not reproduced in the material available.
Mercer's key takeaway is that, given the growing popularity of semi-liquid funds, investors should carefully design their due diligence process for potential managers, incorporating criteria beyond those typically used for closed-ended private markets funds or open-ended liquid public funds. The firm also argues that, as with any private debt allocation, investors should combine different managers and strategies to optimize for the desired balance of return, diversification, liquidity 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 comparatively lighter administrative burden than closed-end funds. That piece also cautioned that the term 'semi-liquid' can be misleading, and advised investors to approach these vehicles in the same manner as any illiquid private markets investment.
Having decided to invest, allocators face the question of manager selection. Because the semi-liquid segment is relatively nascent, Mercer notes that several fund selection factors apply here that do not necessarily arise with other fund types. The article sets out five key areas for fund selection, though the details of those areas are not reproduced in the material available.
Mercer's key takeaway is that, given the growing popularity of semi-liquid funds, investors should carefully design their due diligence process for potential managers, incorporating criteria beyond those typically used for closed-ended private markets funds or open-ended liquid public funds. The firm also argues that, as with any private debt allocation, investors should combine different managers and strategies to optimize for the desired balance of return, diversification, liquidity and risk management.
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