USA – MARYLAND Trends and Developments Contributed by: Michael Hardy, Joseph Machi, Nicholas Stewart and Leen Al-Alami, Duane Morris LLP
the global private capital raised, nearly doubling the amount raised in this segment in 2024, which itself was a record year. Fundraising in 2025 appears to be highly dependent on economic winds and development in geopolitical policies, and innovative sponsors and investors are directing the evolution of the private capital market in response. Fund Finance While sponsors continue to face uncertain markets and slow fundraising environments, the number of funds in the market continues to grow. The need for liquidity outpacing bank balance sheet capacity (and willingness to lend) has spurred innovation and flex - ibility of financing structures. This has created opportunities for both new regulated lenders and non-bank lenders such as private credit lenders to fill the gap. Such lenders are also work - ing with institutional lenders as syndication and club partners in various ways. For their part, sponsors are exploring additional relationship options to make capi - tal and leverage stretch further, including increased interest in general partner and management company loans. Market uncertainty is leading to additional innovation in the fund finance space, which has seen in the past year: • Increased use of term loan tranches on both capital call facilities and NAV facilities, with many non-bank lenders providing these tranches. • Alternative structures, such as separately managed account or similar structures and uncommitted credit lines, offered by institutional lenders. • Borrowing base credit given to previously excluded high net worth investors. • Increased popularity of rated note feeder structures coinciding with increased insurance capital. • Increased use of continuation vehicles and sec - ondaries financing facilities. • Exploration of the use of collateralised loan obliga - tions, collateralised fund obligations (both investor and sponsor-led) and synthetic risk transfers by bank lenders.
In addition to all of this innovation, 2024 brought about the first broadly syndicated, publicly rated use of securitisation in the subscription-backed space, as Goldman Sachs completed a USD500 million rated securitisation deal with various subscription credit facilities on its balance sheet. Last year, sponsors and lenders waited for the new Institutional Limited Partners Association (ILPA) NAV- Based Facilities Guidance with bated breath. When it was finally published in July 2024, stakeholders were pleasantly surprised by the practicality of the sugges - tions and the ability to implement them without much additional demand on sponsor time and resources, and investors appear happy with the increased focus on transparency in communications and reporting. This positive reaction has re-energised interest in NAV financings for sponsors and lenders. In short, innovation in the fund finance market contin - ues to push the market to projections that it will nearly double its size over the course of the next five years. Private Credit Private credit continues to be a bright spot in the pri - vate equity landscape. It has grown annually for over a decade by offering greater flexibility and speed in execution to borrowers. Private credit’s upward trajec - tory is expected to continue in 2025. One factor in the expansion of private credit has been its emergence in asset-based finance. Regula - tory compliance and risk mitigation strategies have resulted in banks adopting more conservative lending practices and reducing their capital-intensive portfo - lios. As a result, banks have retrenched from asset- based transactions. Private credit firms have stepped in to fill this gap. In 2024, Apollo, Oaktree Capital, the TCW Group and Partners Group each launched an asset-based finance business or platform. The private credit market’s focus on asset-based finance looks to continue through 2025, as 58% of private credit managers surveyed by Preqin said they will prioritise an asset-based loan strategy this year. The continued partnering of private credit firms with banks is another factor expected to grow the private credit market in 2025. These strategic partnerships
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