The direct lending market, which is composed of privately negotiated loans made directly to privately owned companies, has experienced asset growth of roughly 10x over the past decade. Over this period, the asset class has produced compelling returns versus competing yield-oriented asset classes such as broadly syndicated loans and public market high-yield bonds.
This long period of outperformance—coupled with an increase in capital directed towards private loans—might be viewed as signs that the window of opportunity for direct lending could be closing, especially as the interest
rate hiking cycle peaks.
In this paper, we examine the structural features supporting US direct lending’s attractive risk-return potential and how they may fare in a changing investment climate.
