Hedge funds lured by private credit boom

One fascinating deep dive to start: Our friends over at FT Alphaville delve inside the private equity-insurance nexus and find out what happens when the world’s dullest industry gets very exciting.

In today’s newsletter:

• Hedge funds seek to expand into private credit

• Wealth managers gear up to put UK savings into private assets

• Fears over US debt load and inflation ignite exodus from long-term bonds

Private credit boom lures top hedge funds

Hedge funds have observed the boom in private credit — and they want a piece of the action.

Big hedge funds are pushing into private credit as they seek to establish themselves as diversified financial institutions, with Millennium Management, Point72 and Third Point all looking to launch new funds and strategies.

Third Point, a $20bn firm with a history as an activist investor, plans to launch a publicly traded private credit fund next month called Third Point Private Capital Partners, which will lend directly to businesses.

Millennium, which manages more than $75bn in assets, has been weighing whether to launch a separate fund to invest in less liquid assets, including private credit, its first new fund since it was founded more than three decades ago.

Steve Cohen’s Point72 earlier this year hired Todd Hirsch, formerly a senior managing director at Blackstone, to lead its private credit strategy. He has also recruited Alex Greeley from Linden Partners, Jay Ditmarsch from Carlyle and Rudder Zhang from Brookfield Asset Management.

“Hedge funds are in the asset gathering business,” said one leading banker to the sector. “The boom in private credit has really attracted their attention.”

Private credit — or non-bank lending that encompasses everything from risky corporate loans to debts tied to music royalties — has become a huge growth area as asset managers displace banks as lenders.

Millennium, Point72 and Third Point — among the world’s largest and oldest hedge funds — have typically specialised in trading so-called liquid securities, such as equities, fixed income and commodities, that they can move in and out of quickly.

But private credit offers a way for them to target higher returns, access longer-term capital and cement their positions as more than just hedge funds, attracting potentially richer valuations for their businesses.

“If you’re the founder of a hedge fund and hitting that retirement succession phase, if you’re going to cash out, how am I going to get the best multiple?” the banker said.

Their investors, such as pension funds, endowments and sovereign wealth funds, were also increasingly looking for a “one-stop shop”, they added.

Read the full story here to find out why hedge fund forays into private credit are not entirely straightforward.

UK wealth managers eye private assets

Some of the UK’s largest wealth managers are planning to capitalise on the opportunities in private markets, writes Emma Dunkley in London.

The likes of RBC Wealth Management, Evelyn Partners and Quilter Cheviot told the Financial Times that they are looking to provide greater access to these assets — ranging from private equity to private credit and infrastructure investments — to wealthy clients.

Further down the wealth ladder, investment platforms including Hargreaves Lansdown and AJ Bell are also considering whether to sell these products to so-called ‘DIY’ investors, who still need a degree of sophistication to buy them. 

The advent of the Long Term Asset Fund, a new regulated vehicle authorised by the Financial Conduct Authority, has given the wealth managers — previously dependent on investment trusts — a new channel.  

LTAFs are a type of “evergreen” semi-liquid fund offering a mixture of private assets, which can be harder to sell quickly, and those that are easier to offload, such as money market funds or listed equities.

But LTAFs are not without their teething problems. Some wealth managers said that there were operational hurdles in offering these products. This is due to the way their businesses were set up to price funds on a daily basis, compared with the less liquid LTAFs, which require a 90-day withdrawal notice.

Others said they were wary of LTAFs’ lack of track record, while some pointed to concerns over liquidity risk, especially in the aftermath of disgraced fund manager Neil Woodford, who came unstuck because of liquidity problems.

Still, as people live longer and search for better retirement outcomes, wealth managers are keen to increase their allocation to private assets and the higher returns that can ensue. For financial advisers, though, the liability that comes with recommended riskier products might prove to be too much of a burden.

Chart of the week

Investors are fleeing long-term US bond funds at the swiftest rate since the height of the Covid-19 pandemic five years ago as America’s soaring debt load tarnishes the appeal of one of the world’s most important markets. 

Net outflows from long-dated US bond funds spanning government and corporate debt have hit nearly $11bn in the second quarter, according to Financial Times calculations based on EPFR data. 

The second-quarter exodus is on track to be the biggest since severe market turbulence in early 2020, write Harriet Clarfelt and Kate Duguid in New York, and marks a powerful shift from the average inflows in the previous 12 quarters of about $20bn. 

The redemptions from long-term bond funds, which are widely used by institutional investors, come at a time of growing jitters over America’s fiscal path. Fund flows capture only a sliver of the vast US bond market, but they provide a proxy for investor sentiment. 

“It’s a symptom of a much bigger problem. There is a lot of concern domestically and from the foreign investor community about owning the long end of the Treasury curve,” said Bill Campbell at bond-focused investment firm DoubleLine, referring to the funds flows. 

US President Donald Trump’s “big, beautiful” tax bill, which is under consideration in Congress, is forecast by independent analysts to add trillions of dollars to US debt over the next decade, something that would force the Treasury department to sell a huge amount of bonds. The White House has countered that tariffs and higher growth would cut the debt.

At the same time, market participants are bracing themselves for the administration’s tariffs on major trading partners to stoke higher inflation, one of the biggest scourges for bond investors. 

Lotfi Karoui, chief credit strategist at Goldman Sachs, said that the outflow “reflects concerns over the longer-run outlook for fiscal sustainability”.

Five unmissable stories this week

The European Commission is examining the Italian government’s controversial sale of shares in Monte dei Paschi di Siena last year, following claims that large investors, including UniCredit, Norges Bank Investment Management and BlackRock, were shut out of the bidding process. 

Millions of British savers will be able to access “targeted support” under sweeping new rules from the Financial Conduct Authority to help individuals get better returns on their money, as companies including Hargreaves Lansdown and Vanguard gear up to offer such services.

Stefan Hoops, the current chief executive of DWS, has urged European policymakers to adopt a more pragmatic stance towards investments from China and the Gulf, as Berlin prepares to spend hundreds of billions overhauling its creaking infrastructure. 

Vanguard, the world’s second-largest asset manager, is cutting fees on nearly half of its bond exchange traded funds in Europe as part of a push into the fixed income market and as competition among the biggest fund providers heats up.

US Senator Elizabeth Warren has demanded that some of the country’s biggest private investment groups give up information about their lobbying efforts to secure tax breaks in Donald Trump’s spending bill, as debate intensifies about the landmark legislation’s winners and losers.

And finally

Vincent van Gogh has had an enduring influence on Anselm Kiefer. See work by these two giants of the art world side by side this summer at the Royal Academy.

28 June — 26 October 2025

royalacademy.org.uk