How Fund Structures Evolved To Shape Today's Private Credit Markets: Part 1 Of 3

Key Takeaways

• Following the 2008–2009 Global Financial Crisis, reforms such as the Dodd-Frank Act, the Volcker Rule and Basel III constrained traditional bank lending and accelerated the growth of non-bank credit.
• The U.S. market led the evolution of fund structures that supported private credit strategies while elevating governance and valuation expectations.
• In Europe and the UK, regulatory harmonization arrived later through the Alternative Investment Fund Managers Directive (AIFMD) and continues to develop through frameworks such as the European Long-Term Investment Fund 2.0 (ELTIF 2.0) and the UK Long-Term Asset Fund (LTAF), strengthening cross-border fundraising and operational discipline.
• For U.S. firms acquiring UK/EU managers, understanding how these regimes evolved is essential for aligning valuation governance, reporting cadence and fund operations across jurisdictions.

Common Roots: The Shift Toward Private Credit

The Global Financial Crisis of 2008-2009 reshaped the global credit landscape. In the aftermath, central bank policy and market volatility drove institutional investors — pension funds, insurance companies and endowments — to reassess traditional fixed income allocations and seek alternative sources of yield and diversification.

At the same time, private equity sponsors required reliable debt financing channels for portfolio companies, and private credit emerged as a durable alternative to traditional bank lending. Closed-end, drawdown-style vehicles, which were modeled after private equity funds, became the standard approach for aligning long-term capital commitments with the illiquid nature of private loans.

Two forces accelerated the shift:

• Bank retreat: Heightened regulation and stricter capital and liquidity requirements reduced banks' ability to originate loans, particularly to middle-market borrowers.
• Private credit response: Non-bank lenders expanded into the void, providing sponsor-backed financing and direct lending solutions often sized to support leveraged acquisitions and ongoing portfolio needs.

Over the following decade, the U.S. and European markets built on these same foundations but at different speeds and through different regulatory and structural mechanisms.

U.S. Market: Regulation as a Catalyst for Innovation

In the U.S., post-crisis reforms reshaped how credit was financed and distributed. The Dodd-Frank Act, the Volcker Rule and other supervisory measures limited traditional bank lending and reduced the competitiveness of bank balance sheets in leveraged finance.

Additionally, supervisory guidance discouraged certain highly leveraged lending practices, tightening bank participation in middle-market and higher-yield credit. These pressures did not eliminate demand for leveraged lending — they shifted it. Private credit managers were positioned to scale quickly, while maintaining governance and reporting practices consistent with institutional expectations.

Over time, alternative lenders and managers above certain thresholds operated under more formal Securities and Exchange Commission (SEC) oversight, raising baseline expectations around compliance, documentation, and transparency.

The outcome for private credit was structural: the U.S. developed a broad range of fund types that enabled private credit to scale, paired with clear governance expectations around valuation, disclosure and reporting.

U.S. Advances in Fund Structure and Market Development

Several fund structures became central to the U.S. private credit ecosystem:

• Business Development Companies (BDCs): BDCs provided a scalable structure for private credit strategies with established reporting conventions, while operating under SEC-defined governance and disclosure requirements.
• Interval Funds and Evergreen Private Funds: These semi-liquid vehicles provide periodic liquidity windows.
• Exchange-Traded Funds (ETFs) with Private Assets: As asset managers matured under the SEC's regulatory oversight, product formats evolved to include more registered or regulated approaches to holding less liquid strategies.

Collectively, these structures reinforced a key U.S. theme: fund design and governance expectations evolved together, supporting both market growth and institutional confidence.

European Market: A Slower Path to Harmonization

In Europe, structural development was influenced by a more fragmented regulatory environment and the realities of operating across multiple legal systems. Following the European Sovereign Debt Crisis, reforms such as Basel III, the Capital Requirements Directive (CRD IV and V), and the Capital Requirements Regulation (CRR) accelerated bank deleveraging and created opportunities for private funds to acquire and manage credit exposure.

Earlier efforts, such as the Undertakings for Collective Investment in Transferable Securities (UCITS) framework (1985) and the Markets in Financial Instruments Directive (MiFID, 2007), established foundational elements for cross-border distribution and investor protections. But meaningful harmonization of alternative investment fund oversight arrived with AIFMD in 2012.

AIFMD introduced the manager "passport" concept and established core expectations around governance, reporting and risk management. In practice, it supported professional investor access at scale while shaping operational discipline expected of alternative managers.

UK and EU Frameworks Enabling Scale: ELTIF and LTAF

More recently, Europe and the UK have progressed toward structures designed to facilitate longer-term investing in private markets with clearer operating frameworks:

• European Long-Term Investment Fund (ELTIF) 1.0 (2015): Initially restrictive, with limited adoption due to narrow asset eligibility and complex requirements.
• ELTIF 2.0 (2024): Broadened eligible assets and revised requirements to support more workable structuring and distribution pathways.
• UK Long-Term Asset Funds (LTAFs): Developed to support long-term and illiquid strategies within an authorized structure emphasizing governance and liquidity oversight.

Across these regimes, a common theme emerges: modern private credit growth is inseparable from operational capability, including valuation policy design, liquidity tools and reporting processes.

What This Means For U.S. and UK/EU Firms

First, for U.S. firms evaluating a UK or EU fund platform, differences in how these markets evolved tend to surface in three practical areas:

• Valuation governance and accountability.
• Reporting cadence and documentation standards.
• Cross-border operating consistency.

Understanding why these differences exist is critical to building a consistent, audit-ready valuation and compliance infrastructure.

Second, for UK and EU private credit managers, best practices mean pressure-testing three areas:

• Governance design that holds up across jurisdictions.
• Valuation readiness aligned to fund terms.
• Consistency that supports growth and comparability.

UK/EU best practices are increasingly shaped by global expectations for operational maturity, making valuation governance and reporting discipline a strategic advantage, not just a compliance requirement.

Conclusion: Divergence, Then Convergence

Private credit market growth reflects shared origins and distinct trajectories. The U.S. developed a wide range of scalable fund structures earlier, while Europe and the UK moved more gradually through harmonization and cross-border coordination.

Today, both regions continue to converge around stronger governance practices, greater disclosure discipline and valuation processes designed to support stakeholder expectations and regulatory scrutiny.

In our next article, we will examine the legal and regulatory frameworks that underpin private credit markets in the U.S. and Europe. The third and final installment will focus on valuation frameworks.

This article was co-authored by VRC:

Adrian Lowery, CFA, Parag Patel and Daniel Turi, CFA

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.