The direct lending market has expanded rapidly over the last few years with Pitchbook now estimating it accounts for around 50% of the wider $1.6 trillion global private credit asset class. The reason for this growth is well known, being largely the retrenchment of public lenders from certain credit segments, owing to capital and regulatory restrictions. However, direct lending is also an asset class which has proven to be dynamic and that continues to evolve. Significant change has occurred in terms of its structure, the competitive landscape with emergent factors shaping how investors are navigating this investment opportunity.

Here, we explore the most recent developments within the asset class and identify where we perceive the most attractive opportunities are. Additionally, we will look at the increasing role of ESG and impact within the direct lending market and evaluate its growing importance in enhancing overall potential returns.

Price erosion

One of the most clearly observable developments within credit markets this year has been the renaissance of the broadly syndicated loan (BSL) market. For a year, following the underwriting stasis of banks in early 2023, as higher rates threatened certain business models, private credit funds filled a funding-gap for large leveraged buyouts. This underpinned a fundraising spree that might create deployment challenges and competition in the large-cap part of the market, now that the traditional funding route is available to sponsors and their investee companies once again. 

You can now read the full whitepaper at the link below