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Private credit allocation outlook
In 2024, do you expect your institution to increase, maintain or decrease its overall exposure to private credit?
The overwhelming majority of investors polled are expected to increase or maintain their private credit allocation in the next twelve months. A total of 76% expressed a desire to increase their allocation, 20% are aiming to keep it steady and only 4% are planning to decrease.
This sentiment needs to be viewed within the context of a higher and stable interest rate environment creating strong relative value returns in private credit, versus other private and public market alternatives.
Investors’ desire to increase allocations, however, has been significantly hampered by historically tight liquidity conditions in private market portfolios. This is primarily driven by large exposures to private equity and venture capital strategies built over the period of low interest rates. PE and VC managers have been cautious about selling assets in a higher rate environment, leading to slower cash returns to LP portfolios. This, in turn, has seen limited reinvestment in strategies like private credit.
Source: CL Research
To be fully allocated in your private credit portfolio, how many manager relationships would you require?
To ensure the entire picture is captured, it is often not enough to ask investors their view on allocation growth alone. It is also important to understand how they will allocate by strategy, and to how many fund managers, in order to meet their objectives.
When polled on the number of manager relationships that LPs expect in their private credit portfolios, approximately 60% will allocate to 10 managers or fewer, with the remaining 40% expecting to allocate to more. This stands in contrast to private equity allocations, where investors historically chosen to work with a far broader range of fund managers.
As the private credit market continues to mature and develop – and we see growth of both products and strategies for institutional investor consumption - we expect that the number of managers in portfolios will need to increase as well.
Please contact us should you have any queries or wish to find out more about Campbell Lutyens’ private credit practice. In addition click here for important information regarding the report.
