Key Takeaways
- • Family office searches for private credit funds are slowing in 2024, with North American private credit comprising 11% of fund searches this year, down from 18% last year, according to Preqin data.
- • In Europe, private credit fund searches fell to 8% from 10% a year ago, while 75% of asset managers report fundraising has become increasingly challenging, per Novantigo.
- • Overall family office allocations to private debt remain at roughly 2%, according to a recent UBS Group AG report, while 39% of UBS survey respondents intend to increase private equity direct investments versus 29% for private debt.
- • Investor concern over falling returns as the Federal Reserve and European Central Bank begin cutting rates is a leading factor weighing on private credit demand, per Preqin analyst Rachel Dabora.
- • North American family office interest in real estate has surged as distressed discounts emerge, while European searches are dominated by private equity at three-quarters of the total.
Summary
Private credit is losing ground among family offices, a segment that has become a key growth target for direct lenders. According to Preqin, family offices are searching for private credit funds at a slower pace in 2024 than in 2023. North American private credit fund searches accounted for 11% of the total this year, down from 18% last year, and below the 39% share for private equity and venture capital and 45% for real estate. In Europe, private credit searches fell to 8% from 10% a year earlier. Bloomberg reports that the decline poses a challenge for lenders relying on the trillions of dollars family offices oversee to fuel the industry's next growth phase, which has ballooned to a $1.7 trillion market.
Fundraising conditions are difficult. Novantigo found that 75% of asset managers report fundraising has become increasingly harder, particularly for closed-end European Long-term Investment Funds (ELTIFs), a vehicle that has been a key channel for raising money from wealthy individuals for private credit strategies. Private credit funds have intensified efforts to attract wealthy investors, and several private credit vehicles aimed at individuals have recently closed successful raises. Overall family office allocations to private debt remain near 2%, per UBS.
Investor concerns center on returns. Preqin's Rachel Dabora identified the potential for lower returns as the Federal Reserve and European Central Bank begin cutting rates as a top concern. Direct lending funds returned double digits last year, according to Cliffwater LLC data, driven by higher borrowing costs, but the floating-rate structure of these loans means rapid rate cuts could reduce future income. Alex Chaloff, CIO of Bernstein Private Wealth Management, argued that private equity may be a more natural fit for family offices given their risk tolerance and long-term horizons, noting that a 20% private credit return could signal excessive risk.
Regional and competitive dynamics also matter. UBS's global family office survey found 39% of respondents wanted to increase private equity direct investments, versus 29% for private debt. Citigroup's global family office survey showed net bullishness on private credit exceeded bearishness by more than 30 percentage points in Europe, the Middle East and Africa and in North America. Philippe Stiernon, CEO of ROAM Capital, said Latin American investors have historically favored equity-like strategies over credit due to high domestic rates. TGIM Assets Capital CIO Grace Cheung said her firm co-invests alongside established private credit managers and makes direct private debt investments rather than committing through generic private credit funds.
Fundraising conditions are difficult. Novantigo found that 75% of asset managers report fundraising has become increasingly harder, particularly for closed-end European Long-term Investment Funds (ELTIFs), a vehicle that has been a key channel for raising money from wealthy individuals for private credit strategies. Private credit funds have intensified efforts to attract wealthy investors, and several private credit vehicles aimed at individuals have recently closed successful raises. Overall family office allocations to private debt remain near 2%, per UBS.
Investor concerns center on returns. Preqin's Rachel Dabora identified the potential for lower returns as the Federal Reserve and European Central Bank begin cutting rates as a top concern. Direct lending funds returned double digits last year, according to Cliffwater LLC data, driven by higher borrowing costs, but the floating-rate structure of these loans means rapid rate cuts could reduce future income. Alex Chaloff, CIO of Bernstein Private Wealth Management, argued that private equity may be a more natural fit for family offices given their risk tolerance and long-term horizons, noting that a 20% private credit return could signal excessive risk.
Regional and competitive dynamics also matter. UBS's global family office survey found 39% of respondents wanted to increase private equity direct investments, versus 29% for private debt. Citigroup's global family office survey showed net bullishness on private credit exceeded bearishness by more than 30 percentage points in Europe, the Middle East and Africa and in North America. Philippe Stiernon, CEO of ROAM Capital, said Latin American investors have historically favored equity-like strategies over credit due to high domestic rates. TGIM Assets Capital CIO Grace Cheung said her firm co-invests alongside established private credit managers and makes direct private debt investments rather than committing through generic private credit funds.
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