Hamilton Lane, an alternative asset manager based in the U.S., has closed a $900 million fund that will invest in private credit markets globally.
The firm's Strategic Opportunities Fund IV attracted capital from investors in Asia, Europe, the Middle East, and North and South America, according to a statement Tuesday from Hamilton Lane. Pensions, endowments, and insurance companies contributed to the new investment pool, adding to the firm's more than $30 billion of credit assets under management or supervision at the end of last year.
Private credit has been one the most popular asset classes as institutional investors have turned to it for higher yields than traditional fixed income. Drew Schardt, Hamilton Lane's global head of private credit, said in an April interview with Institutional Investor that “the growth has been driven by good reasons, including a secular shift in the banking market.”
After the financial crisis in 2008, as regulators pressured banks to step back from mid-market lending, private equity firms and other asset managers eagerly stepped in with credit products. “Banks were the lion’s share of lending to middle market companies—those between $20 and $100 million in earnings,” Schardt said in April. “For a long time, banks were lending to these companies in full force. The financial crisis changed that.”
[II Deep Dive: Private Credit Will ‘Crush’ The Next Downturn, Alts Manager Says]
Schardt said that given the flood of cash into private debt, he often gets a lot of questions about when the current credit cycle will end. “We say it’s impossible to know. We do think this will be the longest cycle in history, but we also think we have significant room to run,” he added.
In a recent report, Hamilton Lane, which oversaw $424 billion in total assets at the end of last year, addressed the potential effect of a downturn. “What happens when the music stops?” Schardt asked. “Well the data suggests that heading into and coming out of an economic cycle is when private credit crushes it.”
Hamilton Lane expects private credit to do well in today's environment because 86 percent of the asset class is floating-rate, meaning the debt’s coupon rises when interest rates head up. Credit, if underwritten well, also offers downside protection and other features that mitigate risk during a downturn.