The Private

Credit Compass
Charting the broad and bright horizon

MAY 2023
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

It’s a bull market

P
rivate credit has grown substantially over the
past decade into a mature, $1.5 trillion asset
class and continues its expansion at more
than 20% per year.1
Current macroeconomic uncertainties do, and should
continue to, support institutional demand for private
credit as it provides returns that allow investors to meet
– and exceed – their typical return hurdle of 7%. Today,
private credit offers broad and myriad strategies typically
seeking double-digit net returns and strong downside
protection. Additionally, private credit strategies are
generally floating rate, so provide attractive relative
value across rate environments.

AUM Growth & Number of LPs Allocating1

And, this momentum is expected to see significant

growth. Within the next decade, the $100 trillion
institutional market is projected to increase its average
portfolio allocation to private credit from 3.8% today
to 5.9%.2 That, combined with the $178 trillion private
wealth universe – in its early stages of allocating to alter-
natives – could bring total private credit AUM to more
than $5 trillion, or nearly the size of the private equity
asset class today.1

1. Preqin, 2023.
2. The Wall Street Journal, “Pension investments in Private Credit Hit Eight-Year High”, January 29, 2023. 1
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

Following the implosion of yields post the Great tranche that invests into a single fund, or multiple funds
Financial Crisis of 2008 (GFC), individual investors in the case of CFOs. With this structure, the note receives
have flocked to vehicles likes Business Development an investment grade rating and pays a fixed coupon.
Corporations (BDCs) (increasingly private vs. traded), More recently, the insurance standard-setting organi-
listed closed-end funds, and interval funds investing zation, namely, the National Association of Insurance
in private credit in search of yield. The high profile Commissioners, has scrutinized these structures to
success of a few mega asset managers early to the game ensure the investment grade rating aligns with the
has sparked a growing frenzy in the channel among underlying risk. Though expensive to establish and
managers eager to replicate it. more complex to operate, SMAs where each invest-
To diminish concentration risk, some major brokerages ment is rated can also be viable solutions for large
and wealth managers are seeking to diversify their insurers. Insurers are also showing a strong appetite for
offerings, opening opportunities for the many other investment grade-rated private assets, such as private
managers and strategies in market. As success in the retail placements, whole loans (e.g., residential mortgages
channel requires many factors to align, managers must and renewable energy), infrastructure debt, and private
have a strategy that resonates and have institutional collateralized debt as higher yielding complements to
buy-in at the highest levels given the need to commit public investment grade debt.
significant resources – time, staffing, capital – to navigate
complex ’40 Act rules, and for product development Private credit in funds in market & target commitments1
and distribution. 1200
1200 400
$400

AGGREGATE COMMITMENTS
Private credit managers are eyeing other investors, 1000
1000
350
$350

TARGETED ($ BILLION)
NUMBER OF FUNDS

as well. Given their respective sizes, reliance on yield, 800

800
300
$300

250
$250
and relative under-allocation to private credit currently,
600
600 200
$200
insurance investors are expected to be part of the indus-
150
$150
400
try’s exponential expansion. 400
100
$100
200
200
For insurers, the income obligations to policy and 50
$50

annuity holders are buoyed well by historical income 0

0 0
0
2017 2018 2019 2020 2021 2022
premia that private credit strategies, such as direct
lending, asset-based lending, and specialty finance
provide. To address the strict, risk-based capital require- The demand for private credit solutions from all these
ments, managers have accelerated their development of investors will bring significant capital to the asset class in
insurance solutions, often by hiring dedicated staff with the near- and long-term, which is already visible. Today,
technical knowledge directly from insurers. there are 934 funds in the market, seeking an aggregate
Some suitable solutions for insurers include rated notes, $380 billion of commitments.1
collateralized fund obligations (“CFO”), and separately One thing is clear: it’s a good – and right – time to invest
managed accounts (“SMA”). Both rated notes and CFOs in private credit!
involve issuance of a note subordinated by an equity

2
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

Navigating choppy waters

Over the last year, Briarcliffe has held dialogues with more than 2,100 private credit LPs, from new investors
allocating to a single fund, to veterans with dedicated allocations across multiple sub-strategies and fund vintages.
The macroeconomic environment is top of mind, as are several other trends, as outlined in more detail here.

63%
Significant disruptions
Last year witnessed many significant disruptions. On
the heels of COVID-19 lockdowns, markets faced the
confluence of military conflict in Europe, the greatest
inflation rate in 40 years, eight Fed rate hikes, and the Will increase allocation to
specter of recession. private credit strategies
Preqin Investor Survey, 2023
The resulting fallout in capital markets was the worst
market performance in recent memory as investors experts to proclaim the traditional “60/40” stock-bond
went emphatically “risk-off.” US equities experienced allocation guidance dead and to recommend pivoting
their sharpest declines since 2008, in tandem with bonds, to alternative investments.
taking away an historic safe haven. This caused many
Focus on reups
Inflation and interest rates 2003–Present3 The wave of backlogged 2020 deals and the volatility
of the new issue syndicated loan market significantly
accelerated the deployment rate of 2019-2020 vintage
10.0%

funds, bringing private credit managers back to mar-

ket much quicker than expected. As a result, investors
8.0%

are spending more time and capital on re-underwriting

and potentially re-committing to existing managers 12
6.0%

to 18 months ahead of plan which creates more chal-

lenges for new managers.
4.0%

Denominator effect
Sharply lower public and private equity valuations in
2.0%

2022 scuttled many investors’ carefully planned asset al-

locations as illiquid private credit commitments swelled
0%

2005 2010 2015 2020 above targets, preventing some LPs from making new
Interest Rate Inflation Rate
allocations. Of course, this effect will eventually correct
as equity markets reflate, especially when combined

3. US Fed Funds Rate. Consumer Price Index. Effective March 2023. 3

 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

and sophisticated global investors. These LPs typically

invest directly and seek co-investment to accelerate de-
ployment, lower total management fees, and strengthen
the acumen of internal staff. Managers like the addi-
tional buying power a network of co-investors (ideally,
philosophically-aligned and fast-moving) provides to
control a larger portion of a debt tranche.
These developments, and the ongoing macroeconomic
In 2022, Briarcliffe polled institutional investors on
and geopolitical environment generally, have proved
their sentiments around private credit. Visit our
website to read the full findings.
beneficial to private credit as a reliable solution for both
investors and borrowers. Growth is set to continue as
traditional lenders (i.e., banks and finance companies)
with the continued trend of LPs reallocating from face rising provisions from slowing economies, the
traditional fixed income and equity to private credit in fallout from the Silicon Valley Bank, Signature Bank,
their perpetual search of better risk-adjusted returns. and First Republic Bank collapses, and private credit’s
relentless push into all aspects of the global financial
Evergreen fund structures system. In sharing his bullish outlook for private credit,
one institutional investor told us: “I’ll have a lot of per-
Evergreen structures offer investors the benefit of only
formance calls with my managers in early 2023. But
one primary underwriting. The funds are traditional
those with my private credit managers will be the last
commingled funds that can invest / recycle / distrib-
I make.”
ute income and capital in perpetuity, and periodically,
can accept new commitments and accept redemptions.
These funds are growing in popularity, particularly
for two strategies: i) direct lending, as it has become
a “permanent” allocation for many investors, and
I’ll have a lot of performance
ii) those that derive cash flows from long-dated assets calls with my managers in
with no stated maturity (e.g., royalties and specialty early 2023 – but those with
finance). Though evergreen funds generally have higher
administration requirements and place greater scrutiny
my private credit managers
on valuations, the structure breaks the constant fund- will be the last I make.
raising cycle that is resource- and time-intensive.

Co-investments Institutional investor on his

confidence in private credit
Access to high quality co-investment flow has become
a gating item to a fund commitment for some large

4
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

Private credit adds value

Private credit strategies provide value and should Risk vs. return map5
be included in a diversified investment portfolio. 9
9%
They can deliver both income and capital appreciation 8
8% 60:40
Private
return profiles. In fact, private credit performance 7%
7 Credit6
Stock/Bond6
US Equities6

ANNUAL RETURN
delivers the tightest distribution of returns of any 6%
6
private asset class by a factor of two.4 And, on a 5
5%
risk adjusted basis, private credit can be more 4%
4
attractive than public equity, having captured 92% 3
3% Aggregate
of the S&P’s returns with only half of its volatility 2
2%
Bonds6

over the past decade.5 1

1%
There are several beneficial characteristics of private 0
00 5%
5 10%
10 15%
15 20%
20
credit, which include: STANDARD DEVIATION

Predictability Income
Investment assets are generally senior in the cap- Assets generate regular, often contractual, cash
ital structure, so valuations are less volatile. This flow that is distributed to investors.
leads to more predictable performance.

Returns
Downside protection Potential returns range from high single
Private credit strategies are often senior secured digit to upper teens.
against hard or financial assets, providing
stronger downside protection than private equity, Diversification
for example. The diversity of strategies can succeed over
market cycles: countercyclical strategies, such
as special situations and distressed through one
Liquidity lens; all weather strategies, such as opportunis-
Fund durations are typically shorter than tic credit through another; and stable market
other private market strategies, averaging six to strategies, such as direct lending and asset-based
eight years. lending, through yet another.

4. McKinsey Global Private Markets Review, 2022.

5. Forbes, “Private Markets and the Liquidity Tradeoff”, January 6, 2023.
6. US equities: S&P 500. Aggregate bonds: Bloomberg Aggregate Bond Index. 5
Private credit: Preqin Private Debt Index. All January 2008 – September 2021.
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

As noted earlier, managers – existing and new – are Fundraising duration1

seeking to capitalize on LP interest in private credit,
making a much more competitive fundraising envi-
35 32

ronment. There are now 934 credit funds in market 30

24
globally – a 30% increase over the first half of 2022.1 25
19

MONTHS
Approximately one third of credit funds spent more 20 18 17 18 18
14
than two years fundraising and fewer funds reached 15

their final close in 2022 in the US and globally than 10

7 7
6 6
in any of the past five years.1 As a result, fundraising 5
5 5 5 5

today requires altered expectations, greater stamina, 0

and perhaps most importantly, dedicated expertise. 2015 2016 2017 2018 2019 2020 2021 2022

With a trend of investors coalescing around Average time Average time

larger, more established managers with broad offerings to first close to final close

– the ten largest credit funds represented approximately

half of all private credit capital raised through 3Q strategies within our Four Pillars of Private Credit™.
20221 – it is critical for small- and mid-sized firms to To offer further guidance, we tag each with one of the
offer differentiated investment strategies, whether three categories for portfolio construction consider-
through market segments, asset types, risk / return ation: income, total return, and diversification.
profile, or specific “edges.” We believe private credit provides a versatile solution
To help guide the industry, we recently published delivering attractive risk adjusted returns in a wide
the Briarcliffe Field Guide to Private Credit™ which range of market conditions and should be included in
outlines in more depth details about each of the 26 sub any portfolio.

Briarcliffe’s Four Pillars of Private Credit™

1. Corporate
Credit 2. Specialty
Finance 3. Structured
Credit 4. Real Assets
Credit

Direct Lending Asset Based Lending Asset Backed Agriculture

Distressed Consumer Lending Collateralized Loan Obligations Energy
Mezzanine Insurance Linked Commercial Real Estate Infrastructure
Non-Performing Loans (NPL) Litigation Finance Residential Real Estate Metals & Mining
Opportunistic Net Asset Value (NAV) Lending Real Estate
Secondaries Regulatory Capital Relief Transportation
Special Situations Royalties
Venture Debt Trade Finance

6
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

Income

For income seekers, direct lending remains the “go-to”

strategy as it has been proven cross cycles. With core man-
agers largely set, investors are spending time refining their
portfolios, adding diversification through sector specialists
and investment managers with specific sourcing and un-
derwriting advantages. These investors are also seeking
to diversify corporate risk through other income oriented
private credit strategies, like specialty finance, which offers
POTENTIAL RETURN RISK
DRIVERS DRIVERS exposure to credit backed by large, diversified pools of hard
and/or financial assets. These are intrinsically diverse and
STRATEGY DOWNSIDE encompass a wide variety of underlying exposures such as
VARIATIONS PROTECTION
consumer debt, single family rental homes, and transporta-
REPRESENTATIVE
tion assets.
UNLEVERED NET INVESTOR
RETURN ACCESS
Total Return
PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022
Investors seeking total return are experiencing more oppor-
tunities stemming from market volatility, primarily through
special situations and opportunistic credit strategies. They
1. Corporate Credit Portfolio Construction Solution
are willing to accept greater risk (credit, structuring, event)
Venture Debt Income Total Return Diversifier
to achieve returns potentially on par with, or above, equity.
Investors value these strategies for their inherent flexibility
As the name implies, venture debt involves lending to small, POTENTIAL RETURN RISK
newly established companies during their high growth phase. DRIVERS DRIVERS

They are generally not yet EBITDA positive or positive enough to

• Yield • Credit value of collateral

across asset types, geographies, and paths to value creation.

secure a traditional loan. These companies are typically backed (i.e., intellectual property)
• Warrants
by venture capital and considered to have a high chance of com- • Execution
mercial success. While debt is typically senior secured, venture
debt is considered speculative: lending is based on estimates of
the borrower’s LTV, cash, tangible / intangible assets, and the
STRATEGY DOWNSIDE
path to profitability. Borrowers look to venture debt as an attrac- VARIATIONS PROTECTION
tive form of temporary, non-dilutive capital, unlike further equity
raises. Demand for venture debt typically grows as volatility • Structured solutions • Shorter maturity
increases and equity becomes more scarce. • Collateral type
• Sector focus
In exchange for startup risk, venture debt lenders demand higher

Diversifier
spreads, financial covenants, and a meaningful level of
warrants. Venture debt is a niche strategy that, currently, is not
widely adopted by private credit investors as a core allocation.
REPRESENTATIVE UNLEVERED INVESTOR
NET RETURN ACCESS

15%–20% • Drawdown fund

Lastly, niche strategies seeking to exploit credit imbalances

– Closed end

and sourcing barriers in specific sectors are rapidly gaining

investor interest as core private credit portfolios mature.
Among many others, some diversifying strategies include
NAV lending, media royalties, litigation finance, consumer
lending, NPLs, and insurance-linked. These can deliver
attractive, uncorrelated returns with structural downside
15
protections.

7
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

A bright horizon
In today’s dynamic environment, prudent investors
should take a panoramic view across the full range of
private credit strategies to ensure portfolios that can
perform across market cycles. This can be accomplished
through managers that have proven track records and
demonstrable edges.

Through the first quarter already, 2023 is off to a strong

start during which many weeks private credit fundrais-
ing exceeded private equity allocations.7 And, as noted
earlier, investors continue to indicate their expectations
to increase allocation to the asset class, both with existing
and new manager relationships.

Investors continue to see a “very resilient market”

with sustained lending and capital raising, “EBITDA
stability growing, and leverage level (for the right credits)
remaining at or near historic levels.”8

Easily repeatable: it’s a great time to be investing in

private credit!

Just 18 months after its founding, in

March 2023, Briarcliffe was recognized
by private credit investors and managers
through its selection as the Private Debt
Investor 2022 Advisory and Placement
Agent of the Year (Americas).

7. Alternatives Watch, 2023.

8. Proskauer Trends in Private Credit, April 2023. 8
 PDI Awards
Advisory and Placement
Agent of the Yea r: Americas
2022

Deep expertise
Jess Ryan Laura
FIRM

Robert
Larsen Molina Tirre Morales
Founder & CEO Head of Origination Head of Marketing Head of HR & Office
& Communications Infrastructure
FUNDRAISING

Kyle Collis Jonathan Jennie

John Klarberg Moll Park
Managing Director Managing Director Managing Director Managing Director

Brett Bogdan
Murray Vilicich
Vice President Vice President
GP ADVISORY

Kyle Roger Dax Alexander

Abel Li O’Gorman Schuck
COO & Co-Head Co-Head Associate Associate
of GP Advisory of GP Advisory

Our insights are sought throughout the industry,

which includes speaking regularly at private credit
and alternatives conferences and with global media.

Briarcliffe helped coauthor the curriculum of the

newly launched private debt credential administered
by the Chartered Alternative Investment Analyst
Association (CAIA). The certificate covers private
credit fundamentals, corporate and asset-based
lending, and portfolio implementation.

9
 300 Park Avenue, 16 th Floor
New York, NY 10022

www.briarcliffepartners.com

This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This publication is confidential and is intended for the addressee only. The information contained herein may not
be reproduced in whole or in part; copies circulated, or disclosed to another party, without the prior written consent of Briarcliffe Credit Partners (“Briarcliffe”). Securities are offered through Kingswood Capital Partners, LLC
(“Kingswood”); both Briarcliffe and Kingswood are members of FINRA/SIPC.

Information and opinions presented in this report have been obtained or derived from sources believed by Briarcliffe to be reliable, but Briarcliffe makes no representation as to their accuracy or completeness. Briarcliffe accepts no
liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Briarcliffe.
This report is not to be relied upon in substitution for the exercise of independent judgment. Briarcliffe may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from,
the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and Briarcliffe is under no obligation to ensure that such other reports are
brought to the attention of any recipient of this report.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. Information, opinions and estimates
contained in this report reflect a judgment at its original date of publication by Briarcliffe and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can fall as well
as rise. Securities recommended, offered or sold by Briarcliffe: (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and (3) are subject to
investment risks, including the possible loss of principal invested.

For providing solicitation and other services with respect to the Fund, Briarcliffe and Kingswood will receive cash compensation pursuant to its engagement agreement, including a one-time fee and a fee based on the amount of capital
commitments, if any, as well as reimbursement of certain expenses of Briarcliffe incurred in connection with the provision of its services. As a result, Briarcliffe and Kingswood has a material financial incentive and potential conflict
of interest to recommend an investment in the Fund. Briarcliffe also may provide services to other third-party sponsors that have similar or different objectives from the Fund. Accordingly, potential investors should recognize that
Briarcliffe’s participation as a placement agent for interests in the Fund will potentially be influenced by its interest in earning such compensation, including any differentials in compensation that are offered by the Manager or other
sponsors and/or their respective investment funds, vehicles and/or accounts for which Briarcliffe acts as placement agent.