3 things to know on indirect private debt
By Marco Busca , Head of Indirect Private Debt at Generali Asset Management (part of Generali Investments)
What are the main characteristics of indirect private debt that make it an attractive option for investors?
Indirect Debt is the activity of fund selection and management of Fund-of-Funds in the Private Debt space.
A Fund-of-Funds, from a technical perspective, is a relatively straightforward product. It typically takes the form of a closed-ended or evergreen fund structured as an alternative investment vehicle rather than a UCITS. Instead of directly investing in assets such as loans or equities, it holds a portfolio of fund shares.
This product offers distinct advantages, particularly for investors with limited capital, time, or internal resources for investment selection. A Fund-of-Funds provides a cost-effective alternative to hiring an investment advisor, while offering broad diversification and mitigating the effects of the J-curve. Furthermore, due to the larger scale of its investments compared to smaller, individual investors, a Fund-of-Funds can achieve significant economies of scale.
This bargaining power enables the negotiation of substantially discounted management fees with underlying fund managers, which more than offsets the costs associated with the Fund-of-Funds structure itself.
Why are investors showing a growing interest in indirect private debt?
Private Debt emerged as the last asset class within Private Assets following the Great Financial Crisis, initially operating in the shadow of Private Equity.
However, it has now grown to over $1.6 trillion in assets under management, successfully navigating the challenges of the pandemic and demonstrating resilience during the recent years of market tension and higher base rates.
Institutional investors have gradually but steadily increased their investment volumes in Private Debt over the past decade, driven by several compelling factors.
What are the main growth drivers for indirect private debt in 2025?
A significant area of growing value within Private Debt is Asset-Based Lending.
While cashflow corporate Direct Lending and Credit Opportunities remain the core of every Private Debt portfolio, they are no longer the sole focus. Although funds financing Real Estate and Infrastructure projects have existed for many years, the recent boom in Diversified Asset-Based Lending is noteworthy.
Funds raising capital from institutional investors have increasingly replaced banks in financing real assets, both tangible (such as ships, planes, and industrial plants) and intangible (such as royalties, receivables, and legal cases). The benefits are low correlation, short duration, and a natural hedge against inflation.
Another opportunity, but also a significant challenge, is the democratization trend within Private Markets. While I support innovation and the spread of semi-liquid Private Credit products accessible to wealth management and retail networks, it is crucial to properly disclose the liquidity characteristics to avoid significant liquidity tensions in the event of sudden market dislocation.
Another trend we will leverage for our products is Private Credit Secondaries. The discounts observed last years make this asset class highly attractive to investors, with returns approaching 15%. This trend will evolve from a temporary phenomenon, driven by specific sellers’ stress situations, to a consolidated flow over time.
Managing Director at BF.capital GmbH - Empowering Investments with more than a Decade of Expertise in Private Debt
4 天前Thanks for the insightful article! Diversification, access to market opportunities, and regulatory aspects are crucial considerations for indirect private debt investments. Especially in a changing market environment, these structures can play a vital role for investors. Private debt continues to evolve, bringing a wide range of strategies to the forefront. I agree that direct lending remains a key pillar; however, niche strategies like special situations and capital solutions are gaining traction among institutional investors. These specialized credit strategies not only offer the potential for higher returns but also provide significant benefits for portfolio diversification - helping to build exposure in underweighted sectors and access less competitive credit markets. A great read on an increasingly relevant topic!
Placecap
1 周Thanks for sharing these valuable insights! As you rightly point out, a multi-manager approach provides investors with broader diversification, economies of scale, and helps mitigate the J-curve effect. Private Debt is becoming an increasingly complex and fragmented asset class, where targeted manager selection and a rigorous due diligence process are key to driving alpha. Moreover, staying closely connected with key market players is crucial for adapting fund strategies to the evolving market environment.