Private credit funds are often established as closed-end, PE-style vehicles because of issues associated with the relative illiquidity of the funds’ assets. PE and private credit assets are not equally illiquid, however, and the differences trickle through to meaningful variations in the fund documents for each strategy. Therefore, a PE sponsor needs to understand how the comparative liquidity of the underlying assets affects the terms and management of a private credit fund before launching one as an additional strategy. This first article in a two-part series details the abbreviated lifecycle of a private credit fund compared to a PE fund; describes how asset liquidity elevates the importance of economic considerations when admitting subsequent investors to the fund; and examines the heightened significance of subscription facilities in managing the liquidity of a private credit fund. The second article
will contrast the structure and rates of management fees and carried interest charged in private credit funds relative to PE, while also detailing key friction points in negotiations surrounding recycled proceeds. See our two-part series on direct lending funds: “Structural Approaches to Address Liquidity Considerations and Ensure Regulatory Compliance
” (Dec. 3, 2019); and “Five Structures to Mitigate Tax Burdens for Various Investor Types
” (Dec. 10, 2019).