Recent volatility at large-cap private credit managers may create an opening for mid-sized platforms to pick up more allocations from institutional investors.

Such a shift would mark a significant change for an asset class that has seen fundraising concentrated among a relatively small group of large managers over the past decade.

“This could be the time for the mid-sized funds to shine,” said Jess Larsen, founder and CEO of Briarcliffe Credit Partners. “For the last 10 years, the vast majority of capital was raised by the top 20 funds, and that’s probably going to change.”

Large fund managers have recently faced headlines around redemption caps at their evergreen funds pitched toward individual investors, along with being pulled into the broader debate over the role of retail capital in private markets.

Larsen said that Briarcliffe has recently had more conversations with LPs exploring allocations to smaller and midsized managers rather than concentrating capital with firms managing upwards of USD 100bn. The New York-based private credit placement agency defines mid-sized funds as vehicles with around USD 2bn to USD 10bn AUM.

“All the big credit managers have raised a lot of retail capital, and institutional investors are now thinking, should we be there?” Larsen said. “Do we want to be with a manager that is now occupied with serving retail clients?”

Other market participants agreed that GP priorities are beginning to shift, particularly as retail capital plays a larger role in private credit.

“For managers, the focus is shifting toward how to balance consistent capital deployment with the potential for intermittent redemption pressure — or, alternatively, how firmly to hold the line on redemption gates, something that historically has not been a major consideration with a predominantly institutional investor base,” said Tammy Davies, a private credit partner at Morrison Foerster.

The market is experiencing more of a bifurcation, with some LPs continuing to consolidate relationships with a smaller number of large platforms, said David Fann, a partner at private investment firm VSS Capital Partners that focuses on the lower middle market.

“Larger platforms continue to attract capital from relationship-constrained LPs consolidating their manager rosters, while others are questioning whether scale dilutes returns,” Fann said.

At a certain size, private credit funds tend to gravitate toward pursuing the same opportunities as the broadly syndicated loan market, making returns look more like beta than alpha.

“We believe true alpha is generated by backing differentiated, less intermediated opportunities — and those tend to exist more consistently in the middle market, especially in the lower middle market,” Fann said.

Such lending is the historical domain of small and midsized direct lending funds.