Private Debt

Introduction

Corporate lending was traditionally the business of commercial banks, but the global financial crisis and ensuing regulatory backlash created an opportunity for nonbank private asset managers to replace bankers as primary lenders to a large swath of middle market businesses, primarily in the United States. The economic recovery, albeit slow, found many middle market companies looking for debt capital for growth or refinancing. With banks in retrenchment, these companies found asset managers to be willing lenders. Lacking the deposit capital available to banks, the new direct lenders in turn have sought capital from institutional investors hungry for yields closer to 10% than the 1–3% available from traditional sources. Though estimates vary, the size of the corporate direct loan market in the United States today is perhaps as high as $400 billion and growing.

This book is directed primarily toward investors interested in learning more about corporate direct lending. The author comes from the perspective of an investment consultant to institutional investors providing research and advice on asset classes, manager selection, and asset allocation. The book therefore follows the same path that fiduciaries to institutional capital walk in their own due diligence on a new asset class.

Chapters 1–6 collectively describe US middle market corporate direct lending, addressing the three characteristics that broadly define any asset class: return, risk, and liquidity. Private ...