Direct Lending
topic on 2 shows · 27 statements across 12 episodes
Invest Like the Best 
Capital Allocators
27 statements about Direct Lending, every show
Lewinsohn: Direct lending shifted from overhyped to underrated
“Direct lending, which is a big part of what we do now, got very hyped up. Everyone's saying, oh, you have to do it, whether it's allocators, investors, GPs. And now has gone all the way to the point that people are so afraid of it. They miss what's great about…”
Lewinsohn: Software accounts for 30% of direct lending portfolios
“You do have 30% of direct lending in the software space.”
Lewinsohn: Diameter caps direct lending software exposure under 10%
“We've spent a lot of time making sure that we have sub 10% of our direct lending business in that space”
Lewinsohn: Software concentration is the biggest threat to direct lending portfolios
“The biggest threat is industry concentration in software going to impact portfolios in a way that wasn't expected when they were under it.”
Lyon: Direct lenders now hold $2B per deal, competing with syndicated loans
“Today, direct lending competes with the syndicated loan market. Big players have hundreds of billions of dollars. They will hold two billion dollars in a name, so it's no longer a cottage industry supporting the underbanked. It is a direct competitor to the sy…”
Lyon: Direct lending growth is driven by asset managers chasing fee-related earnings
“Now what you're seeing is those businesses are attached to a lot of very large alternative asset managers, many of whom trade on FRE. A good way to create FRE is to take several billion dollars of loans and charge one percent on them. That's what you're seeing…”
Lyon: Direct lending will not suffer an implosion
“Do I think there's going to be an implosion in direct lending? No.”
AUM growth forced former middle-market direct lenders to migrate upmarket
“If you look at the entities that were dominant in the middle market 10, 15 years ago, They don't play in the middle market anymore. As their AUM, their capital base has grown, deployment pressures become so significant that they've had to find more efficient w…”
Private equity firms sponsor at least 70% of direct lending transactions
“Today, at least 70% of all direct lending is sponsored.”
Direct lending loan-to-value ratios currently average in the mid-forties
“Typically, loaned values today are running in the mid-forties.”
Invesco's direct lending team refuses secondary loan pieces from competitors
“If we were to get a call from another direct lender who said, hey, we've closed the deal. We're long, fifty million dollars. We'll send you our IC memo. Would you guys want to buy it? Not for any reason other than that's just not how we conduct business. We wo…”
One turn of fund leverage generates over 300 basis points incremental yield
“A turn of leverage will generally afford you somewhere in the neighborhood of 300 basis points plus of incremental yield.”
Commercial banks will inevitably find ways to re-enter direct lending
“They should, and they will find a way to get involved in this business, but it's hard. They're not really able to take these assets on their own balance sheet. All the issues that we all lived through during the GFC, they're muted today, but they still resonat…”
The term direct lending did not exist when Goldman entered middle-market credit
“And that business plan was basically to do middle market direct lending, which at the time Goldman Sachs had never done. First of all, direct lending didn't exist. It wasn't a word. And Goldman Sachs had never done anything in the middle market.”
Top 20% of Private Credit Firms Dominate 80% of the Market
“80% of private credit is dominated by 20% of the players. They are investing out of very large funds. That market continues to consolidate. And the focus of most folks in direct lending and private credit is on opportunities that are larger than fifty million …”
Direct lending returns will likely fall 200 basis points as banks re-enter
“As that market continues to evolve, and as the banks start to get back into some of these areas, we do think returns are going to come down. Probably by about 200 basis points on average.”
Allocators are overweight direct lending and underweight opportunistic credit
“The market and most allocations are overweight direct lending and don't have enough of the opportunistic credit.”
Direct lending funds taxed away 200 basis points for non-U.S. investors
“There were funds that on average in the direct lending space would take off 200 basis points of return if you were a non-U.S. Investor.”
Clarke notes direct lending was viewed as episodic, $50M mandates in 2017
“At the time, direct lending was considered more of a strategic allocation. It was an allocation that people did episodically. There was dislocation spreads. They tapped into a fund, and then they got out when there was a normalization. You never saw these big …”
Clarke observes performance dispersion across direct lending managers is currently tight
“Sometimes when you get in an area like direct lending, recently the performance dispersion has been very tight.”
Freno: Large-scale direct lending is encroaching on syndicated lending
“The large scale direct lending is really starting to bump in a little bit more towards The syndicated lending spot of things.”
The direct lending market will grow roughly 15% annually through 2028
“So I think the private credit market's going to grow direct lending by, let's say, 15% a year for the next five years.”
Domestic Nationalism Will Keep European Banks Active in Corporate Lending
“The banks won't quite exit the market completely. Because, you know, there's still some French banks, and they're nationalistic about lending in France, and there are German banks that want to lend in Germany, and Swedish banks that want to lend in Sweden, so …”
GSO Pioneered Combining Public Credit Expertise With Direct Lending
“We're going to do something that nobody really had ever done, and that was Marry both public market expertise with origination, and direct lending wasn't really a thing back then”
Few Direct Lenders Could Hold $500M Loans When Owl Rock Launched
“When you got to the top of the pyramid, the number of firms that could actually make loans of two, three, four, five hundred million and hold it was relatively small.”
Direct Lenders Achieve Lower Losses Than Syndicated Loans Through Better Diligence
“The other thing we need to do is because we can do a lot more diligence than a syndicated participant is to make sure we better protect the downside. Whatever the loan losses are in the syndicated market, we need to do a much, much better job. Because we have …”
Acito: Direct lending due diligence resembles evaluating a bank, not hedge funds
“Credit investing is very different in that it. Looks more like a bank. It's particularly when you get into the new origination elements of investing or maybe prop trading to some extent, but just take on the direct lending side. When you walk in to evaluate a …”