Private loan firms are looking to get their share of the valuation 178 trillion dollars the personal wealth market by offering individual investors what looks almost like a mutual fund.

The product, called an interval fund, is being offered to registered investment advisers as an easy-to-sell entry into direct lending. Interval funds are available in amounts up to $1,000 and can be purchased online through brokerage accounts, unlike larger investments that require multi-page subscription agreements.

KKR & Co and Capital Group plan to launch public-private hybrid funds in 2025. Blackstone Inc. is considering launching an interval fund in the near term that would include a private credit distribution, according to a person with knowledge of the matter. A company representative declined to comment.

T. Rowe Price Group Inc. and its Oak Hill Advisors filed with the Securities and Exchange Commission to launch its first private credit span fund, joining firms including Ares Management Corp., which partnered with Zion Investment Group, Carlyle Group Inc., KKR and Cliffwater LLC. When hedge funds that invest in equities and liquid credit are included, the sector has grown almost 40% annually over the past decade in 80 billion dollarsaccording to Morningstar.

“With other types of funds, investment advisers need to do two things. They have to bring the fund to their clients for approval and then ask them to fill out a bunch of paperwork,” said Adam Kertzner, senior partner at Oak Hill. “With interval funds, they can potentially buy and sell them on a discretionary basis for their customers and avoid unnecessary paperwork, making for a more user-friendly experience.”

Looking for investors

The capital raising represents a shift in the $1.7 trillion private lending market, where until now large institutions and ultra-wealthy individuals have been targeted as investors. But private loan funds are finding it more difficult to raise capital from larger investors as still high interest rates weigh on financial assets.

With quarterly input from the biggest investors around multi-year lowsaccording to data provider Preqin Ltd., small investors are becoming an increasingly important breeding ground for private credit firms.

“There's been a ton of interest from private credit managers in interval funds recently,” said Jonathan Gaines, a partner at Dechert who advises registered funds. “It's an attractive offering for funds that want more investment flexibility and a way to easily expand their distribution channel into areas like RIA.”

Gaines said he is personally working on starting four or five different interval funds.

Interval fund managers must file a prospectus with the SEC, and once a fund is launched they can work with RIAs and other distributors to find buyers.

Run Risk

A major risk for investors is a possible increase in redemptions in a fund, the type of event that produces losses in a panicked, first-selling market. Interval funds must meet such requirements, up to a specified amount in a specified period. Investors of institutional funds do not have the right to pay on demand, although direct lenders have the option of honoring demands.

“Interval funds carry a higher risk of having a liquidity mismatch problem as they cannot turn off redemptions like a BDC, which would hold them indefinitely if necessary,” it said. John Cox, founder and chief investment officer of Cox Capital Partners, referring to business development companies, the type of non-traded investment fund offered primarily to high net worth individuals and institutions. “Interval funds facing redemptions in a disaster scenario may be forced to sell assets at the worst possible time to generate cash.”

Of course, to protect against any run-off scenario, range funds tend to hold more liquid assets and be more diversified across different types of credit.

Direct lenders expect bridging funds to become more common in part because they can tap into a network of more than 15,000 registered investment advisors throughout the US to help raise capital.

“We are targeting US retail RIA advisors and are not looking to sell into the more crowded wealth channel,” said Matthew Pallai, chief investment officer at Nomura Capital Management. “We were looking at the growth in the space over the last few years and we saw BDCs as starting to mature.”

bids

• PT Visi Media Asia has filed an appeal with Indonesia's Supreme Court against a judge's decision to include claims of $560 million from a group of private lenders on the verified list of creditors.
• Chanel has collected over 700 million euros from one privately placed bond sale. The London-based luxury fashion house is the latest major European business to raise debt privately
• Cholamandalam Investment and Finance Co. will raise 20 billion rupees by selling subordinated bonds, making the issue India's largest such offer from a shady private lender
• A unit of AXA Investment Managers has agreed to buy a minority stake in Rivage Investment, a specialized private credit firm focused on infrastructure debt overseeing more than €7.7 billion in committed capital
• Stone Point Capital's insurance broker, Higginbotham Insurance Agency, fixed the spread on $1.78 billion of outstanding debt at 450 basis points above the benchmark, making it one of the largest loans with the lowest interest cost in the credit market private.
• A group of private lenders led by Sagard and Comvest Credit Partners offered a five-year, $415 million package to refinance WildBrain's debt
• An arm of Arctos Partners is in talks to help fund one managerial purchasing of Hayfin Capital Management that values ​​the firm at around 1.2 billion euros
• Ares Management Corp. is arranging a €310m debt package for Ardian's acquisition of Italy-based Masco Group Srl
• Bohai Leasing Co is nearby refinancing debt worth $2 billion after RRJ Capital, MBK Partners Ltd. and other financiers are ready to provide new funds
• The Carlyle Group and CVC Credit are leading a private loan package of around €600m for the acquisition of music festival organizer Superstruct Entertainment from KKR & Co.
• Private equity firm Blackstone Real Estate Partners LP has taken a loan from Ares Management Corp. and United Overseas Bank Ltd. refinance an existing facility which funded a commercial office block in Sydney