Retail capital may find itself drawn to evergreen strategies, according to KBRA's analysis.
In a recent report, KBRA, a leading rating agency, has highlighted the growing trend of Evergreen private credit funds and the potential impact of President Donald Trump's executive order on their accessibility to retail investors.
The report suggests that Evergreen private credit funds have reached a significant milestone of €2 billion in assets. However, it does not specify the exact regulatory barriers that may be eased by President Trump's executive order. The order aims to make it easier for defined contribution retirement plans to access alternative investments, but the details are yet to be defined.
Evergreen private credit funds, when offered to retail investors, can be considered more risky due to their complexity. This complexity extends to both the back office and the investor relations team, making management more challenging.
Despite the risks, KBRA finds that diversified exposure to private assets can be beneficial for savers with long-term investment horizons. The democratization of alternative investments, particularly for retirement savers with access to defined benefit (DB) pension plans, is seen as fair. These savers stand to nearly double their portfolio exposure to alternative assets.
The "retailisation" of Evergreen private credit funds has raised concerns among experts. Potential future providers of these funds could be innovative fintech companies offering instant or flexible credit products, traditional banks that modernize their lending platforms, and specialized credit institutions. However, the report does not discuss the potential risks or downsides of investing retail capital in Evergreen private credit fund strategies.
KBRA also notes an increasing trend towards perpetual private asset fund strategies among its rated vehicles and transactions. Bryan Astheimer, head of SEI's Investment Managers business for EMEA, has stated that offering a more liquid, perpetual version of a fund adds complexity across the entire firm, especially if offered to the non-institutional market.
The report does not provide specific details about the alternative investments that could be made available to defined contribution retirement plans. Nevertheless, it suggests that Evergreen private credit fund strategies could attract retail capital in the future.
In conclusion, the KBRA report provides valuable insights into the growing trend of Evergreen private credit funds and their potential impact on retail investors. While the report highlights the benefits of diversified exposure to private assets, it also underscores the need for careful consideration of the risks associated with these strategies.
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