NEW YORK (LPC) - OppenheimerFunds, the asset manager that oversees about US$249bn, has launched a private debt interval fund in partnership with US private equity firm Carlyle Group, to bring retail investors access to less liquid alternative strategies.
The fund, OFI Carlyle Private Credit Fund, invests in an array of private debt securities including direct lending first- and second-lien loans, unitranche loans, mezzanine debt, distressed credit and Collateralized Loan Obligation (CLO) funds, according to a May 24 US Securities and Exchange Commission filing.
The SEC declared the fund’s effectiveness on May 31.
The offering is operated as an unlisted interval fund, which makes quarterly offers to repurchase between 5% and 25% of its outstanding shares at net asset value, according to the filing.
US credit managers have turned to interval funds to give retail investors access to less liquid assets that often offer meatier returns. The move comes at a time when new SEC rules are aimed at improving the liquidity of traditional mutual funds.
OppenheimerFunds is bringing this strategy to yield-craving retail investors - its registered investment advisory and independent channel, said Kimberly Flynn, a managing director at XA Investments.
“It’s harder and harder to sell a mutual fund in today’s fee-sensitive environment,” Flynn said. “You need to offer something truly alternative that has the potential to produce alpha (excess returns). It may also be a conversation starter to sell the rest of their other product lineup.”
The duration of the fund’s underlying assets could be as long as a few years, which contrasts the quarterly liquidity of the fund, said Stephen Tu, a Moody’s analyst.
“It is investing in fairly illiquid underlying assets - direct lending and obviously the distressed structured credit,” Tu said. “If you don’t have the fund liquidity match up with the underlying liquidity of the assets, it’s not a good solution for all investors in the fund.”
The new fund is offering its shares on a continuous basis and it charges a total fee of 479bp. The minimum initial investment is $25,000 for regular and retirement plan accounts, the filing says.
“This thing is priced a little bit more expensive than comparable hedge funds,” Tu said.
Voya Senior Income Fund, an interval fund invested in US senior loans, charges a total annual expense of 218bp for its Class A shares.
Carlyle and OppenheimerFunds formed a joint venture to provide wealth management services to high net worth individuals in the US in October 2017.
A spokesperson at OppenheimerFunds declined to comment. Two spokespeople at Carlyle did not return calls seeking comments.
Reporting by Yun Li; Editing buy Michelle Sierra and Lynn Adler