Pensions & Investments: Why Private Credit and Direct Lending Are Thriving

July 18, 2022

Jamie Athanasoulas, Managing Director, spoke to Pensions & Investments on why private credit and direct lending are thriving in today’s macro-environment, and Karen Simeone joined  a video interview on the demand for private credit and the fundamentals driving its strong growth.

JAMES ATHANASOULAS: One of the things that is attractive about private credit is that it’s an inflation hedge, in that all our loans, especially on the direct-lending side, are floating-rate loans. Investors are benefiting from those floating rates which act as an inflationary hedge.

When you look at previous periods of rising rates, inflation or stagflation, an inflation-protected asset like direct lending has historically performed better than other private and public asset classes. Having a floating-rate [asset] should offset some inflationary pressures that may affect other types of investments.

If you look at the types of private credit deals that are being done or the industries that are being invested in over the last 10 to 20 years, the vast majority of businesses have high revenue certainty, strong cash flow conversion and fewer inflationary inputs. The three industries that make up the vast majority of the private credit market are business services, health care and software and technology, which [all] tend to be less capital-intensive, less cyclical and have lower input costs. As with the floating-rate inflation hedge, this gives private credit deals a bit of downside protection during economically stressed periods.

Read the full roundtable and watch the video here: Private Markets | Pensions & Investments

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Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).