Private Debt

CHAPTER 15Investment Fees

This chapter examines fees for direct lending investment management services, both their level and structure. It draws upon fee, expense, and portfolio information on 33 direct lending managers who together manage $129 billion in direct lending assets and offer limited partnership interests in private partnerships upon which the fee information is based. Portfolio information includes use of portfolio leverage, loan seniority, borrower size, and allocations to nonsponsor borrowers, all characteristics found to explain differences in loan yields and which may explain fee differences as well. All fee and portfolio data are as of September 30, 2017. The intent is to understand whether the direct lending fees found today are at levels that make sense given the expected value proposition for direct lending as an investment, and how direct lending fees compare to private equity.

Direct lending fees vary across the types of vehicles and investors. The analysis in this chapter is mostly based upon direct lending fees charged in private partnerships, whose investors are largely institutional investors and larger high‐net‐worth investors. Other investor groups will pay higher and lower fees than those for private partnerships. Very large investors, those who can allocate over $100 million to a single manager, create separately manage accounts (SMAs) with direct lenders and are able to negotiate lower fees because of the scale of the portfolios. On the other ...