Morgan Stanley | Semi-Liquid Private Credit Funds Emerge as Key Growth Driver in Alternatives

What's New:

Morgan Stanley Investment Management reports that innovative "semi-liquid" fund structures are revolutionizing private market access for wealth management investors, with private credit emerging as the fastest-growing segment. These new structures offer regular redemption options and lower investment minimums, effectively democratizing access to previously institutional-only alternative investments.

By The Numbers:

• Alternative assets under management projected to reach $29.2 trillion by 2029, up 74% from 2016

• Private markets allocations expected to grow to 3-5% of U.S. wealth management assets by 2025, from 2% in 2020

• Private credit market size in U.S. reaches approximately $1.7 trillion in assets under management and committed dry powder

Key Trends to Watch:

• Rapid proliferation of semi-liquid fund launches, particularly in private credit, with 101 launches during 2020-2023 compared to 71 in 2015-2019

• Growing adoption of new fund structures including BDCs, ELTIFs, interval funds, and tender offers across private markets

• Shift from traditional closed-end fund structures to more flexible semi-liquid options offering quarterly redemptions

Overall Sentiment:

• Optimistic about continued growth trajectory, viewing semi-liquid vehicles as "only the start of a longer-term secular trend across private markets"

Bullish Factors:

• Private credit's suitability for semi-liquid structures due to contractual payouts, known liquidity through principal return, and consistent valuation metrics

Bearish Factors:

• Concerns about potential "cash drag" on returns from maintaining liquidity sleeves and the need to carefully manage redemption risks through disciplined asset sales

Read the full article from Morgan Stanely here