Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Private equity firms are continuing to diversify away from, well, private equity. 

On Wednesday, Bloomberg News reported that Advent International is planning a move into debt investing and is in the early stages of forming a team to then raise a dedicated fund. The news comes just weeks after tech-focused buyout specialist Thoma Bravo confirmed in a filing that said it's seeking to raise $750 million for its first fund dedicated to credit investing, joining others in the industry that already have thriving debt businesses.

By expanding into new areas like credit, private equity firms can generate more income from their existing customer base of sovereign wealth fund, pension fund, endowments and family offices -- all of which have a seemingly bottomless pit of capital to deploy. These investors have in recent years tried to whittle down the number of relationships they maintain and are super-receptive to new products with different risk and return profiles -- such as a debt of infrastructure fund -- managed by firms they've long allocated capital to for private equity investments. 

Widening Scope
Private equity firms are increasingly exploring other strategies, in part because existing investors are willing to back their pursuits
Source: Preqin
*Data from surveys conducted in December 2016

That dynamic has helped transform the industry's giants into alternative asset managers. Three of the six largest publicly-traded firms -- Apollo Global Management LLC, Ares Management LP and Oaktree Capital Group LLC -- have credit businesses that dwarfs their other units. And Blackstone Group LP's real estate arm has eclipsed private equity unit for a while now.

Given this, it's curious in some ways that it's taken this long for Advent and Thoma Bravo, which manage $39 billion and $17 billion respectively, to make the leap into credit. Start-up costs are light: All they need to do is hire a handful of debt experts and once a fund is raised, begin collecting an annual management fee plus -- if all goes well -- a performance fee, too. Plus, deal flow is ample, in part due to a retreat by big banks that has created an opportunity for alternative investors who are willing to hold buyout-related and other arguably-riskier financing

More Fees, Please
Private equity firms earn a little less from their debt strategies but it's better than nothing. The median management fee on a buyout fund has been 2 percent for the past decade.
Source: Preqin

An added bonus? A larger recurring fee haul points to a higher or improved valuation if a firm decides to sell a stake in itself, a move that has -- in recent years -- provided executives with liquidity without the need to endure the headaches of becoming publicly traded. 

There are still some heavyweights that have yet to launch separate credit arms. Among them? Warburg Pincus, Apax Partners, Cinven, Clayton, Dubilier & Rice, Silver Lake, Hellman & Friedman and Leonard Green & Partners. While some may decide to remain solely focused on private equity for the long haul, expect them to become a shrinking minority. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. To be sure, Silver Lake has a small arm that invests in the debt of pre-IPO, venture-backed technology companies. The size of its first and only fund to date is $92 million, according to Bloomberg data.

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Gillian Tan in New York at

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Beth Williams at