Zurich is going through one of the hottest weeks of the summer, but Reji Vettasseri shows no sign of it. Decalia’s Lead Portfolio Manager for Private Credit Strategies has travelled from the investment boutique’s Geneva headquarters to its offices on Rennweg, for a day of meetings with institutional investors. He greets his visitor with a broad smile and gets straight into a subject that has kept the financial press busy for months: is private credit the next big accident waiting to happen?

«Everyone has read the articles,» he says, relaxed. «There are elements of them that are a little bit overblown, but there’s also a kernel of truth.» Default rates in parts of the direct lending market are «a little bit higher than they should be at this point in the cycle – we’re not at financial-crisis, everything’s-blowing-up levels, but probably higher than normal.» For Vettasseri, that is not a reason to stay away. «That creates opportunities for people, who’ve been playing in the spaces that didn’t get too frothy, to come into those spaces that did and provide solutions while others are in retreat.»

From Bain to Goldman to Morgan Stanley

Vettasseri speaks with the calm of someone who has seen several market cycles from the inside. After studying law at Cambridge and taking an MBA at Harvard, he advised private equity firms at Bain, worked in investment banking at Goldman Sachs, and then built co-investment and secondaries portfolios at Morgan Stanley’s Alternative Investment Partners in London. There, shortly after the financial crisis, he watched a new asset class emerge. «The banks were retreating, and it created a big opportunity to fill a white space,» he recalls.

But the gold rush that followed changed the industry. Many funds, he says, stopped filling the gaps banks had left behind: «They were competing head-on against the banks, and in so doing they lost the ability to find less competitive things.» Since 2019, he has been running the counter-programme at Decalia – European, specialised, and deliberately away from the crowded large-cap buyout lending space. «One of the problems in Europe is that some of the most innovative and exciting companies out there can’t get financing as well as they can in America.»

Growth, Hard Assets, Secondaries

The strategy rests on three pillars. First, growth lending: «A bank will finance the earnings you already have, but they won’t underwrite a growth project.» Second, asset-backed finance – increasingly relevant, he argues, because «nowadays people realize you need to invest in computing infrastructure and physical things.» That includes lending to AI companies, a segment he calls «a beneficiary, not a victim, of what could be the biggest threat to large slugs of the traditional corporate world.» Third, secondaries, which he sees as the honest answer to the liquidity promises of the booming semi-liquid funds: «Actually being the provider of liquidity, rather than just promising liquidity that can’t always be delivered, is a very interesting area of private credit.»

One lesson from the recent turbulence comes up repeatedly: concentration. US direct lenders, he notes, put 20 to 40 percent of their assets into software alone. « Software was not a stupid bet at the time. But the fact it isn’t working out, shows why we want to make lots of clever bets, not put all of our eggs in one basket.»

Fund Three: 500 Million Euros

The numbers back up the confident tone. Decalia’s Private Credit Strategies programme has allocated some 450 million euros across more than 60 deals since 2021. The first fund closed at 118 million euros in 2022, the second at 311 million last September – 80 percent deployed by the time it closed, and fully allocated today. The target of 10 to 15 percent net IRR, unlevered and in euros, has been met; the second fund is currently running well above it. «Most people forget: when they get a 10 percent return in dollars and hedge it into euros, they’re getting 8 percent,» Vettasseri points out.

Investors also get their money back unusually fast. The second fund has already returned 41 percent of invested capital. «I think this is one of the key topics most people don’t understand. What matters is the DPI – money that is realized, not a net asset value story.» Now Decalia is raising fund number three, targeting 500 million euros, with anchor commitments of over 100 million euros lined up for the first close. «Already on day one, it will be as big as our first fund.»

Swiss Pension Funds Are Buying

The buyers have changed, too. While Decalia’s own wealth management clients were early backers, the biggest funders today are Swiss pension funds, alongside family offices up to institutional scale. «When we started this programme, people were asking us: what is private credit? Then they asked: why should we bother? Now the question is: how?»

And the bad press? It has made his clients more selective, not more fearful. «People aren’t saying: let’s get out of private credit forever. It’s not the case anymore that everyone in the asset class deserves a right to win.» The market, he says, is like a Janus figure: «If you look backwards, it’s frowning on the past. If you look forwards, it’s creating an opportunity to deploy in a market that’s becoming less frothy.» Then he adds, with the assurance of a man whose fundraising is ahead of plan: «We welcome that selective environment. We welcome people taking a proper look at us.»