The Alternative Credit Council and Dechert LLP have recently published research based on a survey of over 40 private credit managers and a series of in-depth interviews, which highlights the growing role of retail capital in private credit.

The findings reveal that 41% of participants already have retail clients, and 66% will or are considering raising capital from retail clients for their upcoming fund offerings, with the majority focusing on high-net-worth individuals and semi-professional retail investors.

But with this shift comes new challenges. As new products such as the European Long-Term Investment Fund (ELTIF) and the UK Long-Term Asset Fund (LTAF) emerge, managers need to be aware of the potential operational and regulatory complexities when raising retail capital at scale.

Key Issues To Consider Now

  1. Understand the potential operational hurdles and regulatory challenges you may face when raising retail capital at scale. Although there is a growing emphasis on updating regulatory frameworks to facilitate access to retail, regulation between markets remains uneven.
  2. A lot of work is still needed to support the development of a retail client base and an ecosystem that can serve it has not yet caught up with demand from private client managers to build a retail client base. Automated subscription processes and reporting systems tailored to illiquid assets are still developing, as well as more evolved marketing and distribution channels.
  3. The emergence of new products, including the ELTIF and LTAF, to increase retail investment in private credit is greatly welcomed. It should be noted, however, that these products may introduce constraints on investment managers, such as with respect to borrowing or the portfolio composition, that may lower the returns that can be achieved.

Private credit fund managers were asked if they intend to raise retail capital in upcoming fund offerings

Figure 12 Chart - Do you intend to raise capital from retail clients?
Read the report

Footnotes

Based on insights from a survey of 40 private credit managers and a series of one-on-one interviews with private credit managers across a broad cross-section of jurisdictions and representing an estimated US$800 billion private credit assets under management.