Private credit is losing traction in the competition for family office investments. Once the hottest trend on Wall Street, with money managers heavily investing and growing the private credit sector to a $1.7 trillion market, the enthusiasm among family offices appears to be fading. According to Preqin, a data firm tracking alternative investments, family offices are now seeking out private credit funds less aggressively than they did last year.
This trend is concerning for direct lenders, who depend on the trillions managed by family offices to drive the next phase of growth. Despite a challenging fundraising environment, private credit funds are stepping up efforts to attract the ultra-wealthy, yet family office allocations to private debt remain at about 2%, as per a UBS Group report.
Grace Cheung, Chief Investment Officer of TGIM Assets Capital, noted that her firm prefers handling private credit deals directly rather than through generic funds, thanks to their in-house resources and expertise. This sentiment is echoed by other wealthy investors who are wary of potentially lower returns as central banks begin cutting interest rates.
Private credit fund searches have notably declined in North America and Europe, according to Preqin. In contrast, family office interest in real estate has surged, particularly in North America, while private equity continues to dominate in Europe.
A UBS report highlighted that 39% of family offices are looking to increase private equity investments, compared to just 29% for private debt. Some regions, like Latin America, remain hesitant to invest in private credit due to historically high domestic interest rates.
Despite the overall trend, some family offices are still optimistic about private credit. Citigroup’s global family office survey found a significant number of respondents in Europe, the Middle East, Africa, and North America are bullish on private credit. However, for firms like TGIM, direct investments offer more control over risk and returns, providing greater flexibility compared to traditional private credit funds.
