Hedge funds, long known for their diverse credit investments, are increasingly focusing on the booming private credit sector, with 37% of hedge fund allocators planning investments in the space in the second half of 2024, according to a report by Pensions & Investments.
The report cites a BNP Paribas survey of 197 allocators as revealing that private credit is second only to equity strategies, which was favoured by 61% of respondents.
Several hedge funds have taken different approaches to entering the private credit market, from acquisitions to expanding internal teams and strengthening existing credit capabilities.
Man Group, a long-time investor in credit, expanded into private credit by acquiring US middle-market private credit manager Varagon Capital Partners last year. With $178.2bn in total assets as of 30 June, Man Group sees the US market as a key focus due to its liquidity and depth. The firm aims to grow both organically and through mergers and acquisitions in Europe and the UK as well.
Other hedge funds, including Hildene Capital Management and King Street Capital Management, have also deepened their involvement in private credit. Hildene, which has been investing in private credit since its founding in 2008, formally launched a private credit business in 2022 focused on housing and non-qualified mortgage lending. The firm’s private credit business currently manages $194m out of its total $15.2bn in assets.
King Street Capital meanwhile, a $26bn hedge fund, launched a dedicated private credit strategy in 2022 with over $1bn in assets, leveraging its experience in distressed debt and other credit areas.
LibreMax Capital, founded 14 years ago with a focus on securitized credit, has also expanded into private credit. With $10.5bn in assets under management, LibreMax has added specialists to support its growing private credit operations.
Other prominent hedge funds making moves into private credit include Daniel Loeb’s Third Point, which announced plans to invest in the sector earlier this year, while Greg Coffey’s Kirkoswald Asset Management made its first private credit investment with a recent loan to a Turkish textile exporter. Corbin Capital Partners meanwhile, which has focused on niche areas of private credit since 2014, and Magnetar Capital are also expanding their private credit efforts.
