In recent years, private non-bank lending to private equity-owned, small- and middle-market companies has increased significantly. According to a report from the Loan Syndications and Trading Association (LSTA) detailing data from a recent survey, the U.S. private corporate credit market now exceeds $1.5 trillion and is expected to continue to grow while incurring modest amounts of leverage. Private credit has emerged as a particularly compelling strategy as investors look for new investment vehicles that provide yield, diversification and downside protection given recent market volatility.
Often historically limited to institutional investors, sponsors of permanent capital vehicles holding private credit and private equity investments are increasingly seeking to make these opportunities available to high net worth individuals and retail investors. Permanent capital vehicles include closed end funds, such as interval funds and tender offer funds, open end funds and business development companies (BDCs) among others. We expect to see increased market interest from retail investors in permanent capital vehicles. Retail investor interest in BDCs has already grown significantly, especially for those looking to gain exposure to private credit and middle-market lending. Both interval funds and tender offer funds have also recently gained popularity among investors seeking to diversify into non-public assets.
A recent report issued by the Investment Company Institute (ICI) notes that closed end funds are highly suitable vehicles to provide retail investors with exposure to the private markets and can serve an important function provided that the SEC considers additional reforms. The ICI report suggests that the SEC allow closed end funds offered to retail investors to invest in private funds, subject to board oversight, limitations on leverage and transactions with affiliates and other provisions of the Investment Company Act of 1940, as amended, without imposing investment minimums.
Changes adopted by the SEC also should help certain types of permanent capital vehicles. In March 2025, the SEC issued exemptive relief allowing a private BDC to offer multiple share classes with varying sales loads and distribution fees even if the shares are not publicly offered. The ability to offer multiple share classes should allow private BDCs to attract a broader range of investors with varying and customized fee structures and increase its capital raising opportunities. Also, in April 2025, the SEC separately granted exemptive relief in an effort to simplify and modernize the co-investment process for BDCs and affiliated investment vehicles. This relief allows affiliated joint ventures of a BDC to participate in a co-investment transaction with other affiliated investment vehicles (including mutual funds).
We provide links here to our resources on permanent capital vehicles, including a comparison of the various structures and applicable regulatory considerations.