Cresset Partners Private Credit Fund: Q&A with Kevin O’Donnell

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Cresset Partners recently launched the Cresset Partners Private Credit Fund, which invests in a diversified portfolio of private senior secured loans, among other private credit opportunities, with the objective of delivering consistent income and strong downside management.

We connected with Kevin O’Donnell, Executive Managing Director and head of Cresset’s Private Funds Group, to learn more about the Fund and how this “all-weather strategy” offers investors the potential to generate higher risk-adjusted returns relative to traditional fixed income markets. Below is what O’Donnell had to share:

Kevin, tell us about Cresset Partner’s private credit fund. What makes it stand out in the private credit landscape?

Cresset Partner’s Private Credit Fund (CPCF) invests in a diversified portfolio of private senior secured loans, among other private credit opportunities, with the objective of delivering consistent income and strong downside management. Cresset’s strong brand reputation has allowed us to forge institutional-scale partnerships with seasoned credit managers and invest alongside them through separately managed accounts and joint ventures. These institutional partnerships have resulted in reduced investor fees compared to existing private credit market access points. CPCF is also offering founder investors a stake in the Fund’s general partnership, further enhancing return potential.

What is private credit?

The private credit market is defined by debt financing to companies from investor funds as opposed to banks, bank-led syndicates, or public markets. Private credit also generally consists of several asset classes: direct lending (senior, junior, and mezzanine lending), special situations, distressed lending, and others. Direct lending can either be corporate (repayment comes from cash flows generated by the operating company) or asset based (financing is limited to a company’s physical or esoteric asset liquidation value).

The focus of CPCF is investing in cash-flow based, sponsor-backed, senior secured lending.

  • Cash-flow-based means relying on the cash the corporate borrower generates for repayment.
  • Sponsor-backed means the borrower is owned by a private equity fund; the “sponsor” is the General Partner of the fund.
  • Senior secured means the debt has first priority for repayment in the company’s capital stack.

These loans generally arise from control buyouts – when private equity sponsors acquire portfolio companies, using a mix of debt and equity.

Why should investors be looking at private credit now? What is the opportunity?

We believe that now is an excellent time to invest in private credit, particularly senior secured loans to U.S. mid-market private companies.

Private credit is an “all-weather” strategy, and current market conditions have made investing in private credit appealing.

Overall macroeconomic dynamics combined with declines in traditional bank financing and public market debt issuances have resulted in more investor-favorable loan structures: lower leverage, higher pricing, and tighter covenants.

Since private credit loans are typically floating rate loans (adjust based on a reference rate, such as SOFR), they provide a natural hedge to recent interest rate increases.

And despite this investor-favorable market shift, private equity “dry powder” continues to yield consistent demand for first-lien senior secured debt.

We expect this private credit vintage to be especially compelling to investors, and therefore the launch of CPCF is timely.

How and where is Cresset investing within the private credit asset class?

We believe that direct loans provide the most potentially advantageous risk-adjusted returns in private credit, especially given the recent increase in spreads and interest rates, and therefore should serve as the core of a private credit portfolio. During times of market volatility, it is important to invest in resilient companies, with lower leverage, and companies that have a strong financial backing, such as a financial sponsor. It is also important to have an experienced set of managers who have track records of persevering through turbulent times and have the resources to return investors capital if needed.

That’s why CPCF has strategically partnered with managers who are market leaders in the direct origination of sponsor-backed, senior secured loans, with strong underwriting and risk management capabilities, and long histories of low loss rates.

Investing alongside our manager partners allows us to launch with a highly diversified portfolio, consisting of more than 200 newly originated positions. The CPCF investment portfolio will consist primarily of U.S. based, first lien senior secured, floating rate, and sponsor-backed loans in diversified, non-cyclical industries.

Who should be investing in private credit?

Investors looking for low-volatility and the potential for steady current income should consider private credit. CPCF investors benefit from quarterly cash distributions, as well as strong downside management and historically low default rates given CPCF’s focus on first-lien, senior secured loans.

What can / should investors expect from Cresset’s fund?

Investors should expect consistent current income with strong downside management; we strive for above-average returns alongside quarterly cash distributions. CPCF does not have a performance J-curve or ramp period for distributions because a material amount of capital will be put to work immediately. We expect investors to be fully invested within six months of their first capital call. CPCF avoids any ramp-up inefficiencies, as our manager partners will warehouse newly originated loans for CPCF on a quarterly basis. The bespoke partnerships that we have arranged with our partners provide institutional scale, efficiency, and economics.

How can someone get started with Cresset’s private credit fund?

The Fund is evergreen, and we will accept subscriptions on a monthly basis. However, to receive a GP stake and enhanced economics, investors must commit within our first $500 million raised.

Important Information

The Fund is an open-end fund with an indefinite term. Due to restrictions on transfer, the illiquidity of the Interests, and the possibility that Redemption Requests may remain unfulfilled or are expected to be paid out over time as described in the offering materials, investors may be unable to cash out of the Fund for an extended period of time, or even indefinitely.

Investing involves risk. There can be no assurance that the Fund will achieve its investment or performance objectives, including the return of capital and/or the achievement of targeted returns. The Underlying Vehicles may similarly fail to meet their investment objectives. The possibility of a partial or total loss of the Fund’s capital exists.

Each of the Fund’s investments in the Underlying Vehicles will be an illiquid and long-term investment, and there can be no assurance that the Fund will be able to realize the value of such investment or otherwise be able to effect a successful realization event or exit strategy.

Foreside Fund Services, LLC provides Registered Representative Services. Member FINRA.


About Cresset

Cresset is an independent, award-winning multi-family office and private investment firm with more than $45 billion in assets under management (as of 04/01/2024). Cresset serves the distinctive needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.

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