Blog - Page 2 of 5 - Alternative.Investments

Seven Ways Higher Interest Rates Will Change the NT REIT Industry

Higher interest rates can have a significant impact on real estate and the non-traded Real Estate Investment Trust (REIT) industry, affecting various aspects of its operations and performance. Here are seven potential impacts

Cost of Borrowing

Non-traded REITs often rely on debt financing to acquire and develop properties. Higher interest rates can increase the cost of borrowing for these REITs, leading to higher interest payments and potentially reducing their profitability.

Property Valuations

As interest rates rise, the yield on alternative fixed-income investments (such as bonds) also increases. This can make real estate investments relatively less attractive, potentially leading to a decrease in property valuations. Non-traded REITs typically hold a portfolio of properties, and if the value of these properties declines, it could affect the overall net asset value of the REIT.

Dividend Payments

Non-traded REITs often distribute a significant portion of their earnings as dividends to investors. Higher interest rates can lead to increased borrowing costs and potentially squeeze the funds available for dividend payments. Investors may become less attracted to non-traded REITs if the dividend yield becomes less competitive compared to other investment options.

Investor Demand

Rising interest rates can make other investment options, such as bonds or savings accounts, more appealing due to the potential for higher returns with lower risk. This could result in reduced investor demand for non-traded REITs, which may lead to slower capital raising for new projects or investments.

Fundraising Challenges

Non-traded REITs often raise capital through public offerings. Higher interest rates can lead to decreased investor interest in these offerings, as potential investors may seek higher returns from alternative investments that become more attractive due to rising interest rates.

Exit Strategy

One challenge with non-traded REITs is the lack of a liquid secondary market for investors to sell their shares. Higher interest rates could potentially make it even more difficult for investors to exit their positions, as the reduced demand for shares might lead to longer holding periods before finding buyers.

Development and Expansion

Higher interest rates can affect the profitability of new property development and expansion projects. If borrowing costs increase, it might lead to a slowdown in new project acquisitions or developments, impacting the growth potential of non-traded REITs.

It’s important to note that the impact of higher interest rates on the non-traded REIT industry can vary depending on factors such as the specific REIT’s portfolio composition, leverage levels, management strategies, and the overall economic environment. REIT managers typically employ various strategies to mitigate the effects of interest rate fluctuations, such as interest rate hedging or adjusting their investment strategies to adapt to changing market conditions.

Click here to learn more about Non-traded REITs

Limitations of the 60/40 Portfolio and the Role of Alternative Investments.

The traditional 60/40 portfolio allocation has been a popular investment strategy for many years. It involves allocating 60% of your portfolio to stocks and 40% to bonds. This strategy has served as a good rule of thumb in the past but it has a number of limitations that investors should be aware of.

60/40 Limitations

Limited diversification. The 60/40 portfolio is only diversified across two asset classes: stocks and bonds. This can be a problem if one of these asset classes experiences a prolonged downturn. For example, in 2008, the stock market lost more than 50% of its value, while the bond market also declined significantly. This meant that 60/40 portfolios lost a lot of money in a short period of time.

Low expected returns. The expected returns for stocks and bonds have been declining in recent years. This is due to a number of factors, including low interest rates and high valuations. As a result, 60/40 portfolios may not provide the same level of growth as they did in the past.

Lack of inflation protection. The 60/40 portfolio is not well-protected against inflation. This is because stocks and bonds tend to lose value when inflation rises. As a result, 60/40 portfolios may not be a good choice for investors who are concerned about inflation.

Tax inefficiency. The 60/40 portfolio can be tax inefficient for investors who hold their investments in taxable accounts. This is because stocks and bonds are taxed differently, and the tax treatment of each asset class can change over time.

Lack of flexibility. The traditional 60/40 portfolio is a relatively rigid investment strategy. This means that it can be difficult to adjust the portfolio to meet changing investment goals or risk tolerance.
Role of alternative investments.

Role of Alternative Investments In Improving the Traditional 60/40 Portfolio

Alternative investments can play a role in improving on a traditional 60/40 portfolio allocation in a number of ways. First, alternative investments can provide additional diversification. This is because alternative investments often have different risk and return characteristics than stocks and bonds. Second, alternative investments can offer the potential for higher returns than stocks and bonds. This is because alternative investments are often less correlated with the stock and bond markets, which means that they can provide diversification benefits and offer the potential for higher returns during periods when the stock and bond markets are doing poorly. Third, alternative investments can provide inflation protection. This is because some alternative investments, such as commodities, tend to do well during periods of high inflation. Finally, alternative investments can offer greater flexibility than traditional 60/40 portfolios. This is because alternative investments can be tailored to meet specific investment goals and risk tolerances.

Here are some specific examples of alternative investments that can be used to improve a traditional 60/40 portfolio allocation:

Private equity

Private equity is a type of investment that provides capital to private companies. It can offer the potential for higher returns than stocks and bonds, but it is also more risky. Retail investors can access private equity through non-traded BDCs, interval funds, and tender offer funds.

Hedge funds

Hedge funds are a type of investment fund that uses a variety of investment strategies to generate returns. An investment in a hedge fund can offer the potential for non-correlated returns. Many tender offer funds offer exposure to hedge fund strategies.

Real estate

Real estate can provide diversification benefits and offer the potential for higher returns than stocks and bonds. However, real estate is also more illiquid than stocks and bonds, which means that it can be difficult to sell real estate quickly if needed. Investing in a diversified portfolio of real estate overseen by a professional manager can help mitigate the risks of real estate.

Commodities

Commodities are raw materials such as oil, gold, and wheat. Commodity futures can offer inflation protection and offer the potential for higher returns than stocks and bonds. However, commodities are also more volatile than stocks and bonds. Managed futures strategies are a common way to access the commodities markets.

. Investors should carefully consider their investment goals and risk tolerance before investing in alternative investments.

Morgan Creek Global Equity Long/Short Fund Liquidation

Morgan Creek Global Equity Long/Short Fund launched in 2011. It is an unlisted closed end fund(tender offer fund) that invests in a diversified portfolio of hedge funds and other private funds, mainly following long/short equity strategies, including both US and foreign stocks. They invested in many of the largest brand name hedge fund franchises including Tiger Global.

Unfortunately Morgan Creek had a difficult time in the mid to late 2010s. Its performance has lagged the MSCI World Index.

Morgan Creek Liquidation Plan

It faced a wave of redemption requests, making the funds operations uneconomical. Ultimately it decided to liquidate:

The asset size of the Fund had decreased to a level where the fixed operating costs of continuing to manage the Fund were difficult to justify, and in light of poor recent performance at that time, we did not have confidence in our ability to raise sufficient new funds to reduce the expense ratio in a timely manner. The Fund officially commenced its liquidation after the 2022 fiscal year audit was complete and the first distribution was paid in the middle of August.
Source: 2022 Annual Report

Morgan Creek has already sold its most liquid assets, and made several significant distributions. In August 2022, they paid out approximately 48% of the fund’s June 30 NAV. During the second quarter of 2023, they paid out another 10%. The remaining portfolio consists of the most illiquid, difficult to sell assets.

The remaining portfolio consists of two managers, private holdings, and a cash balance to cover the Fund’s projected operating expenses. For the two remaining managers, Teng Yue provides 15% liquidity per quarter and Tiger Global 25% per year. We expect the final tranche of our full redemption in Teng Yue to process on March 31, 2024 and the final tranche of our full redemption in Tiger Global on December 31, 2024. The private holdings have no pre-determined liquidity schedule and we continue to evaluate all available liquidity options in the context of value maximization.
Source: 2022 Annual Report

For the remaining assets, valuation is also a concern. Tiger Global made a lot of extremely aggressive investments in tech startups at extremely high valuations. In recent months they have been in the headlines as they struggle to find liquidity. It seems there is a high risk Tiger Global’s portfolio will be written down further, and the ultimate payout to investors will be far lower than the stated NAV. That will reduce the payout to investors in Morgan Creek Global Equity Long/Short Fund. At the same time, investors have limited visibility into the valuation methods of the other remaining portfolio holdings.

What if they are unable to sell the remaining assets? The plan of liquidation permits the Fund to establish a liquidating trust, and transfer remaining unsold assets into it. Fund investors would then be left holding liquidating trust units for an indefinite period of time.

No Exit?

As investors wait for Morgan Creek to liquidate the rest of the portfolio, they have few ways to get liquidity. The shares are not traded on any exchange. Morgan Creek had typically provided investors with liquidity through quarterly share repurchases, but they suspended all share repurchases since April 2022.

Investors who don’t want the uncertainty of the liquidation can try to sell their shares in a private transaction. Alternative Liquidity Capital recently launched a tender offer to buy a limited number of shares in Morgan Creek Global Equity Long/Short Fund. Investors with questions about the offer can find more information on Alternative Liquidity’s website.

iCapital® Launches iCapital Marketplace to Connect Wealth Managers to World’s Largest Selection of Alternative Investment Opportunities

iCapital Marketplace offers enhanced distribution for asset managers with access, diligence, and analytics capabilities for wealth managers, advisors, and their clients – all in one place

Originally posted on iCapital’s website.

NEW YORK & ZURICH — (BUSINESS WIRE) — iCapital, the global fintech platform driving access to alternative investments for the wealth management industry, announced the launch of iCapital Marketplace, the groundbreaking platform connecting financial advisors with alternative investment opportunities offered by the world’s leading investment providers and asset managers.

Powered by its proprietary and patented technology, iCapital Marketplace delivers an all-digital investment experience that bridges the structural divide that has historically separated asset managers, advisors, and clients from alternative investments.

“The iCapital team is thrilled to introduce iCapital Marketplace, a one-stop shop for advisors to access an even broader array of alternative investment offerings, backed by the technology prowess iCapital is known for,” said Lawrence Calcano, Chairman and CEO of iCapital. “Advisors and clients can benefit from exposure to this asset class, but expanding access requires a comprehensive technology platform that optimizes the process with the right technology, tools, and education.”

iCapital Marketplace allows asset managers – from the world’s largest to emerging ones – to offer funds to the growing global iCapital network of wealth managers and advisors on its platform, and the option to benefit from diligence services supported by iCapital.

”Since iCapital’s inception, our mission has been to connect the wealth management community and alternative asset managers with an unrivaled technology and service experience,” said Dan Vene, iCapital Co-Founder & Managing Partner, and Head of iCapital Marketplace. “The launch of iCapital Marketplace is a new era of access, further paving the way for advisors to have institutional-quality access to alternative investments.”

With iCapital Marketplace, asset managers may now also choose to fundraise through iCapital Marketplace and manage distribution themselves. These funds will be supported by iCapital’s end-to-end technology platform that streamlines and automates the alternative investing process, from subscriptions and capital calls to reporting.

“The iCapital Marketplace provides a robust suite of capabilities designed to broaden alternatives within client portfolios. We are committed to deliver institutional quality investment solutions and dedicated service to the network of advisors accessing the platform,” said Todd Myers, Blackstone Senior Managing Director & Chief Operating Officer, Private Wealth Solutions.

The platform also features an array of educational tools, such as market insights, webinars, and training modules.

“The wealth of educational content available at iCapital Marketplace gives us a compelling opportunity to broaden our engagement with advisors,” said Robert Collins, Partner and Co-Head of Private Wealth at Partners Group.

More than a dozen managers participated in the pre-launch of iCapital Marketplace, including Audax Private Debt, Blackstone, Carlyle, CrowdStreet Advisors, Fidelity, FS Investments, Henderson Park, John Hancock Investment Management, Kayne Anderson, Net Lease Capital, Partners Group, RedBird Capital Partners, Steele Creek Capital, and Sealy & Company.

The platform’s document center and investment dashboard provide a holistic view of client investments throughout the investment lifecycle and simplifies oversight and investment communication to the advisors’ clients. Furthermore, iCapital continues to share education and insights about investment strategies and the broader market. Additionally, filtering options allow advisors to narrow the fund menu to what is most relevant to them, including by funds distributed by iCapital for those advisors looking for additional guided support.

“The launch of iCapital Marketplace enhances our ability to discover new alternative investment opportunities via one simple and streamlined platform,” said Michael Moriarty, Chief Investment Officer of Wealthspire Advisors. “The innovative technology and extensive filtering options have improved our ability to source and quickly screen for portfolio ideas. It allows us to customize and fine-tune investment searches in a way that best aligns with our clients’ goals.”

Wealth managers accessing iCapital Marketplace have expanded capabilities integrated into the platform to best serve clients interested in alternative investments. Through the iCapital Marketplace, wealth managers can now access a broad menu of private markets investment opportunities across private equity, private debt, real assets, and hedge funds via one single platform with iCapital, allowing them to build diversified portfolios to meet their clients’ investment objectives.

About iCapital

Founded in 2013, iCapital is the leading global fintech company powering the world’s alternative investment marketplace. iCapital has transformed how the wealth management, banking, and asset management industries facilitate access to private markets investments for their high-net-worth clients by providing intuitive, end-to-end technology and service solutions; education tools and resources; and robust diligence, compliance, and portfolio analytics capabilities. iCapital’s solutions enable organizations to streamline and scale their operational infrastructure for alternative investments and to provide access to direct investments and feeder funds at lower minimums through simplified digital workflows.

iCapital-managed platforms offer wealth advisors and their clients access to an extensive menu of private investments, including equity, credit, real estate, infrastructure, hedge funds, structured investments, annuities, and risk-managed solutions. iCapital has been recognized on the Forbes Fintech 50 list each year from 2018 to 2023, the Forbes America’s Best Startup Employers in 2021, 2022, and 2023, and MMI/Barron’s Industry Awards as Solutions Provider of the Year in 2020, 2021, and 2022.

As of April 30, 2023, iCapital services over $157 billion in global client assets, of which nearly $30 billion are from international investors (non-US Domestic) across more than 1,270 funds. Employing more than 1,130 people globally, iCapital is headquartered in NYC and has offices worldwide, including in Zurich, London, Lisbon, Hong Kong, Singapore, and Toronto.

For more information, visit icapital.com | Twitter: @icapitalnetwork | LinkedIn: https://www.linkedin.com/company/icapital-network-inc

iCapital Media Contact
New York, Morgan Miller
The Neibart Group
icapital@neibartgroup.com
+1 919-602-2806

Skybridge Funds Face Liquidity Crunch: What Investors Can Do

SkyBridge is a famous, some would say infamous alternative asset manager. It is one of the largest sponsors of hedge fund vehicles that use the transparent 40 act fund structure known as a tender offer fund. SkyBridge Multi Adviser Hedge Fund Portfolios and SkyBridge G II Fund LLC each offer exposure to some of the top brand name hedge fund managers including Third Point and Point72. Both funds also have significant crypto exposure.

SkyBridge Tender Offers Oversubscribed

However, in recent months SkyBridge’s tender offer funds have faced a liquidity crunch. The most recent repurchase offers for SkyBridge’s tender offer funds were wildly oversubscribed. SkyBridge Multi Adviser Hedge Fund Portfolios repurchased just 8% of tendered shares in the most recent tender offer, as indicated in a May 12 filing. SkyBridge G II Fund repurchased just 11% of tendered shares according to a May 12 filing. Note that according to the prospectus for each fund, any repurchase plans are at the discretion of each fund’s respective board of directors.

This is the third time in three years that SkyBridge has faced major redemption requests, according to a recent Citywire article. In 2020, they were also faced with nearly $1 billion in redemption requests following a period of poor performance, and sell recommendations from analysts at Merrill Lynch and Citi.

FTX Bankruptcy Limbo

Anthony Scaramucci, the founder of SkyBridge, is no stranger to controversy. Six months ago, Sam Bankman Fried’s crypto exchange, FTX, bought 30% of SkyBridge Capital. Now Bankman-Fried potentially faces decades in prison for fraud and money laundering. FTX’s minority stake in SkyBridge is in “bankruptcy limbo.” SkyBridge Multi-Adviser Hedge Fund Portfolios also owns common and preferred stock in FTX Trading Ltd, although these investments were marked at zero in the latest portfolio disclosure.

Liquidity for SkyBridge Investors

Investors that hang on to their shares may very well be rewarded with long term outperformance. Scaramucci also told Citywire that their Series G fund is having their best year since 2012. However, some investors may be concerned with headline risk from the FTX bankruptcy, or need liquidity as soon as possible. Unfortunately, they face limited options, because there is no active secondary market for interests in any of SkyBridge’s funds. According to the prospectus for each fund, manager approval is required for any transfer between investors.

In certain circumstances, Alternative Liquidity Capital will consider purchasing interests in SkyBridge Multi-Adviser Hedge Fund Portfolios and SkyBridge G II Fund LLC. Please visit Alternative Liquidity Capital’s website, or email info@alternativeliquidity.net for more information.

Carlyle Group’s Alternative Investment Strategy

Carlyle Group is a global investment firm that focuses on alternative investments such as private equity, real estate, credit, and infrastructure. The firm’s alternative investments strategy involves identifying high-potential assets and adding value through operational improvements, with the aim of selling those assets for a profit. Carlyle Group has a total of $376 billion in AUM as of 3/1/2023.

Recently, Carlyle has been expanding its focus to include retail investors, with the launch of a retail platform called “Carlyle Access.” This platform enables individual investors to invest in private equity funds with lower minimum investment amounts. It also provides access to a range of alternative investment strategies, including real estate, credit, and infrastructure.

Carlyle’s alternative investments strategy aims to provide investors with access to high-quality assets that aren’t available through traditional public markets. By targeting assets with potential for operational improvement, Carlyle seeks to generate attractive returns for investors over the long term. Retail investors have become increasingly interested in alternative investments. As we’ve noted before, Private Markets are Going Mainstream.

The recent move towards retail investors through Carlyle Access is an important strategic shift for the firm.

Carlyle Group Alternative Investment Funds

Carlyle Group has several publicly filing alternative investment products available for high net worth retail investors. Here are a few examples:

Fund	Structure	Strategy	Net Assets (12/31/2022)
Carlyle Tactical Private Credit Fund	Interval Fund	Liquid credit (10%-20%), direct lending (25%-35%), opportunistic credit(35%-45%), loans and structured credit (10%-15%), distressed credit (0%-10%)	$1,409,238,155
Carlyle AlpInvest Private Markets Fund	Tender Offer Fund	Private equity investments, including direct investments in private companies, private and secondary purchases of PE funds	Recently Launched, no assets reported yet
CPG Carlyle Commitments Master Fund*	Tender Offer Fund	Invest in private equity funds sponsored by or associated with Carlyle Group	$1,164,775,429
Carlyle Credit Solutions, Inc.	Private NT BDC	Senior secured credit investments in stable companies with positive cash flow	$1,151,501,000
Carlyle Secured Lending III	Private NT BDC	Middle market debt, below investment grade and unrated	$109,672,287

For more detailed info on non-traded BDCS, Interval Funds, and Tender Offer funds check out the Tools and Data Page.

Understanding the Franklin Templeton Alternative Investment Strategy

Franklin Templeton has long been a mutual fund powerhouse. However, they have also quietly become one of the biggest players in the alternative investments industry. Strategic M&A and educational initiatives helped Franklin Templeton alternative investment products gain traction in the RIA channel. Franklin Templeton’s strategic focus on alternative investments is just beginning to have an industry impact.

Acquisitions

Franklin Tempelton has a history of maintaining a conservative balance sheet and a large cash reserve. Under the leadership of Jenny Johnson, they have used this cash reserve to make large strategic acquisitions. Franklin Temleton’s AUM has grown from ~$700 billion in 2018 to almost $1.4 trillion by the end of 2022. Several of the largest acquisitions were in the alternative investments sector, especially private credit.

In 2019, Franklin Templton acquired Benefit Street, a private credit manager with expertise in the U.S. middle market. Consequently, Franklin Templeton became manager of one of the longest running public non-traded BDCS: Franklin BSP Lending Corp(f/k/a Business Development Corporation of America). In 2020, they launched a new private BDC: the Franklin BSP Capital Corp. In October 2022, they launched a new interval fund: the Franklin BSP Private Credit Fund.

Franklin Templeton bought Legg Mason for $6.5 billion in 2020, just as Covid was breaking out, wreaking havoc on global supply chains and financial markets. Critics accused them of paying too much. Its too early to determine if this will be a successful acquisition, but it clearly unlocked expanded their alternatives capabilities, and opened a lot of growth opportunities for their firm. The Legg Mason platform includes several different affiliates with different processes areas of expertise. Franklin Tempelton is allowing them to operate autonomously. One of Legg Mason’s subsidiaries is Clarion, which manages the Clarion Partners Real Estate Fund, a tender offer fund.

In November 2021 they acquired Lexington Partners, one of the private equity firms with a focus on secondary PE investments. They currently have a $14 billion flagship global secondary fund, a $2.7 billion middle market secondary fund, ad $3.2 billion co-investment vehicle.

In November 2022, Franklin Templeton completed its acquisition of BNY Alcentra. This acquisition expanded their private credit capabilities. Alcentra has unique expertise in European private credit. This will give Franklin Templeton management of several retail credit vehicles, including BNY Mellon Alcentra Global Credit Fund a tender offer fund.

Franklin Alternative Investments Education

Surveys frequently reveal that a lack of education is a major barrier to advisers that are looking to offer more alternative investment products. Fund managers that fill this educational gap will have a major strategic advantage. For example, Blackstone offers an “Intro To Alternatives” online video series. Several other products sponsors will offer educational products.

Franklin Templeton has recently increased its efforts focused on alternative investments. For example, in November 2022, In November, the Franklin Templeton Academy announced the launch of its alternative education program as part of our ongoing effort to build knowledge and proficiency around the alternative investment landscape.

According to a recent earnings call:

The program offers a comprehensive curriculum on various types of alternatives, including courses on private equity, real estate, private credit, infrastructure and hedge strategies.

Coursework on alternative investments that the FT Academy offers is eligible for credit toward Certified Financial Planner® (CFP®), Chartered Institute of Management Accountants® (CIMA®), Retirement Management Advisor® (RMA®) and Certified Private Wealth Advisor® (CPWA®) certifications and offered at no cost to the learner.

Educational opportunities lay the groundwork for a strong product distribution network. Closely related, Franklin Templeton has recently expanded its partnership drive with CAIS, and announced a new partnership with iCapital.

Distribution

Franklin Templeton has a strong distribution network for traditional mutual funds that it built out over over half a century. However, they only recently started to ramp up their distribution team for alternative investment products. On the 2022Q4 earnings call, Franklin Templeton management mentioned that they created a dedicated distribution team to cover alternative investment products in the wealth management channel.

This table shows some of the most notable retail alternative products that Franklin Templeton is currently offering .

Fund	Structure	Strategy	AUM(millions)
Franklin BSP Capital Corp	Private BDC	First and second lien senior secured loans of private middle market companies	$778
Franklin BSP Lending Corp(f/k/a Business Development Corp of America)	Public NT BDC	Senior secured loans of private middle market US companies.	2,876
Franklin BSP Private Credit Fund	Interval Fund	Private credit investments in middle market companies	Launched 2022Q4, no assets reported yet
Clarion Partners Real Estate Income Fund	Tender Offer Fund	Private commercial real estate and publicly traded real estate securities	$525
BNY Alcentra Global Multi-Strategy Credit Fund, Inc.	Tender Offer Fund	Credit instruments including senior secured loans, CLOs, structured products, etc.	$265

Several of these products are starting to gain major traction in the RIA channel.

Free tools and data for the alternative investments industry:

The Reemergence of Non-traded REITs

Total non-traded REIT (NT REIT) assets were $232 billion as of the end of 2022Q2, up 76% compared to a year ago. This recent growth has been led by Blackstone, which has come to dominate the sector. Yet several other major asset managers have launched new funds, indicating that the NT REIT is becoming a mainstream institutional product. This year is on track to be first year since 2016 that new NT REIT launches exceed exits.

The NT REIT sector survived three major existential threats in the past decade. First, in 2014, an accounting scandal at the REIT then known as American Realty Capital Properties brought fundraising down across the entire sector. Second, in April 2016 new FINRA 15-02 went into effect, bringing heightened scrutiny on the impact of up front selling costs. Industry participants scrambled to develop share class structures that would blunt the perceived impact, with limited success. Finally, in April 2016, The Department of Labor issued a new fiduciary standard that would have made it nearly impossible to justify high commission products like NT REITs. Although courts overturned this rule, the uncertainty it caused stymied NT REIT fundraising for several years.

Yet NT REITs survived these challenges and reemerged in a new form. In this paper we take a deep dive into the structural changes that have occurred in the NT REIT sector over the past decade. Then we look to the future and consider what the NT REIT sector will become.

Note: This is an excerpt adapted from a The Reemergence of Non-traded BDCs, a research report available to Alternative Investments Pro Members. Click here to sign up and access the full report. Already a member? Click here to login and access the content.

See also:

What is a non-traded REIT?

List of current non-traded REITs with current assets

PGIM Registers Non-traded BDC

On November 1, PGIM filed a registration statement for a new perpetual life non-traded BDC: PGIM Private Credit Fund. PGIM, formerly known as Prudential Investment Management, has been expanding its alternative investment lineup in recent years. In this article we provide a preview of PGIM’s new NT BDC, and its alternative investment business strategy.

PGIM Private Credit Fund Strategy

According to its draft registration statement PGIM Private Credit fund will invest primarily in privately placed floating rate leveraged debt, including senior secured, first lien ,debt issuances in middle market companies primarily in the US. It will focus on middle market companies that the manager believes to be more differentiated and less competitive with the broader capital markets.

PGIM Private Credit Fund Share Classes and Fund Structure

PGIM’s non-traded BDC is doing a public offering and will have three share classes: S, D and I. The minimum initial investment for Class S and Class D shares will be $2,500. The minimum initial investment for Class I shares is $1,000,000. Class S and Class D shares will have up front sales charges and shareholder servicing fees, although the exact amount is not specified in the draft registration statement. The prospectus language describing the share class structure is very similar to other public perpetual life BDCs offered by major asset managers such as Oaktree Strategic Credit Fund.

The base management fee and incentive fee levels are also left blank in the draft prospectus. To access detailed a comprehensive dataset covering non-traded BDC fees sign up for a Pro Membership.

About PGIM

PGIM has approximately $1.3 trillion in assets under management, including $267 billion in alternative investment strategies. According to their website they have over 200 client relationships that have lasted over 20 years. In August 2022, PGIM launched the PGIM Private Real Estate Fund, a non-traded REIT/Tender Offer Fund hybrid.

Non-traded BDC pipeline show big changes are coming

BDCs assets have have surged in the past year. Will the growth continue?

For now, the structural changes in the broader macroeconomy and the investment management industry that have driven NT BDC asset growth are still in motion. Moreover, the pipeline of recently launched, and soon to launched funds supports the idea that the recent growth will continue and may even accelerate in the next year. Eighteen NT BDCs have launched so far in 2022, including thirteen private funds, and five public funds.

The details of these new launches also hint at the potential magnitude of coming growth for NT BDC assets.

Change is Coming

More traditional asset managers have continued to enter the NT BDC market. So far in 2022 Pimco, Fidelity, and T Rowe Price have all made initial filings for non-traded BDCs. These firms will all benefit from established distribution networks, and brand names that are familiar to financial advisors. Moreover, a larger portion of their existing customer relationships are outside the traditional alternative investment industry. Therefore, they will likely be expanding the market, rather than competing with other alternative managers for assets. Also note, Fidelity and T Rowe Price each have diversified financial services businesses which will give them unique access to detailed proprietary data on a wider range of potential investors. It is exceedingly unlikely these major financial services firms would launch NT BDCs unless they anticipated they could raise funds that were large relative to the existing size of the market.

Many firms with existing alternatives businesses are also launching new NT BDCS. Nuveen and Blackrock are other examples of traditional assets management firm that were earlier to the alternatives market , and they have both launched new non-traded BDCS in 2022. Other firms familiar with anyone who watches the private equity and private credit space, such as Golub Capital, Owl Rock, Ares, Oaktree, and Bain have also launched new funds in 2022.

Recent Non-traded BDC Launches

The following table lists all the non-traded BDCS that have launched

Fund	Offering Type	Term	Launch Date
TCW Star Direct Lending LLC	Private	Finite	9/1/2022
Brightwood Capital Corp	Private	Finite	7/29/2022
Nuveen Churchill Private Capital Income Fund	Public	Perpetual	7/22/2022
PIMCO Capital Solutions BDC Corp	Private	Finite	7/11/2022
Sixth Street Lending Partners	Private	Finite	6/28/2022
Varagon Capital Corp.	Private	Finite	6/2/2022
BlackRock Private Credit Fund	Public	Perpetual	5/31/2022
New Mountain Guardian IV BDC L.L.C.	Private	Finite	5/6/2022
Wellings Real Estate Income Fund	Private	Finite	5/3/2022
AFC BDC Inc.	Private	Finite	4/29/2022
AGTB Private BDC	Private	Finite	4/18/2022
Redwood Enhanced Income Corp.	Private	Finite	4/1/2022
Golub Capital Direct Lending Unlevered Corp	Private	Finite	3/31/2022
Golub Capital BDC 4 Inc.	Private	Finite	3/31/2022
Owl Rock Technology Income Corp.	Public	Perpetual	2/11/2022
Oaktree Strategic Credit Fund	Public	Perpetual	2/3/2022
HPS Corporate Lending Fund	Public	Perpetual	1/27/2022
North Haven Private Income Fund LLC	Private	Perpetual	1/24/2022

Note that all the public NT BDCs launched in 2022 so far are perpetual life vehicles. In contrast, all but one of the private BDCs is a finite life vehicle.

Recent non-traded BDC registrations

Several high-profile firms have funds still pending registration, and they will likely launch within the next few months. The following table shows notable public NT BDCS that are pending registration as of the date of this report.

Fund	Term	Registration Date
Fidelity Private Credit Fund	Perpetual	9/6/2022
T. Rowe Price OHA Private Credit Fund	Perpetual	7/28/2022
Ares Strategic Income Fund	Perpetual	8/8/2022
Bain Capital Private Credit	Perpetual	12/23/2021

Investors seeking private credit exposure can now choose from several non-traded BDCs managed by top brand name asset management firms. Asset managers entering the space will face increased competition, but also benefit from the mainstream acceptance of the fund structure. Successful NT BDC sponsors will find ways to distinguish themselves from the competition through prudent underwriting and skilled deal sourcing.

The NT BDC sector has been here for years. It started as a backwater of the credit markets, but it has grown and transformed into a critical part of the financial system. No asset manager or credit investor can afford to ignore NT BDCs.

Note: This is an excerpt adapted from a Pro Research Report: Don’t Call it a Comeback: The Revival and Transformation of the Non-traded BDC Sector, available to Alternative Investments Pro Members. Click here to sign up and access the full report. Already a member? Click here to login and access the content.

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