Hedge Funds Shift $11 Billion to Private Credit Amid Bond Market Outflows

Large hedge funds, including Third Point, Point72, and Millennium Management, are making significant strides into the private credit market. These firms are establishing new funds specifically designed for direct corporate lending, bypassing traditional banking systems. Third Point is launching a listed fund named Third Point Private Capital Partners, while Millennium is preparing its first new fund in over three decades. Point72 has bolstered its private credit operations by hiring experts like Todd Hirsch from Blackstone. These strategic moves indicate a shift in how hedge funds are adapting their strategies to remain competitive in the evolving financial landscape.

Private credit involves lending that circumvents traditional bank loans and public market securities. This sector includes high-yield corporate loans, royalty financing, and other non-liquid debt instruments. These assets are not actively traded and require long-term commitments from investors. Hedge funds, typically known for their fast-paced market activities, are transitioning into this slower, more stable space to generate more predictable returns. This shift marks a change in how hedge funds aim to attract and serve investors in a more stable environment.

Diversification is another key driver for hedge funds expanding into private credit. Firms like Millennium and Point72 are aiming to become full-service financial institutions. They are preparing for future leadership changes and long-term business growth. Institutional clients, such as pension funds and sovereign wealth funds, are increasingly requesting more investment options. These clients seek exposure to private credit due to its potential returns and stability. Private credit is no longer considered a niche market but is becoming central to the strategies of modern hedge funds.

UK wealth managers are also exploring private market investments for their clients. Firms like RBC Wealth Management and Evelyn Partners are interested in using the Long Term Asset Fund (LTAF), a combination of private and public assets. These funds could offer clients improved retirement results through increased returns. However, LTAFs come with limits on withdrawals and concerns over liquidity. Despite these challenges, firms view them as important tools in shaping future investment portfolios.

Not all investors support this shift toward private market funds like LTAFs. Concerns over the short track record of these products and past liquidity issues that led to fund closures and investor losses persist. Yet, the demand for private asset exposure remains strong. Financial institutions are working to expand access while managing risks and meeting regulations. The goal is to make broader investment possible without triggering past problems or compromising the safety of investors.

Meanwhile, attention is shifting in the United States as bond markets experience significant outflows. Around $11 billion left long-term bond funds in the second quarter of 2025, marking the largest such exit since early 2020. Rising concerns over US fiscal policy and long-term debt projections are cited as the primary reasons. Donald Trump’s tax proposals are a major point of debate, with pundits warning that such policies could add trillions of dollars to the national debt if implemented. This prognosis is making investors nervous about holding long-term fixed-income exposures.

These investment trends raise broader questions about the future role of alternative finance. Hedge funds are absorbing capital once directed toward public debt markets. In contrast, decentralized finance platforms have yet to attract comparable institutional interest. The strength of hedge funds in private credit reflects a focus on regulatory stability and scale. Whether blockchain-based lending systems can gain ground remains uncertain. The future will depend on how traditional and decentralized platforms adapt to ongoing changes in global financial markets.