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Aon Retirement and Investment Blog

Direct Lending: An Investment Opportunity Within Private Debt

Executive Summary 

  • Our recent white paper discusses direct lending, a growing segment of the private debt market, which Aon Hewitt Investment Consulting, Inc. (AHIC) believes could be a potential fit for certain portfolios.
  • Private debt includes a wide range of illiquid credit strategies, including distressed debt, direct lending, mezzanine debt, special situations, and venture debt.
  • U.S. banks have significantly scaled back their middle-market lending activities post-2008 and the subsequent introduction of more stringent banking regulations. Since the beginning of 2009, we have seen European banks restrict their middle-market lending activities as well. The lack of “traditional” bank lending in this space has created the opportunity for attractive risk-adjusted investment opportunities.
  • Direct lending strategies are typically accessed by investors through closed-ended vehicles with an expected life of seven to 10 years. Because of the illiquid nature of small- and middle-market loans—which are the segments of the market primarily targeted by direct lending strategies—our capital market assumptions for a typical leveraged direct lending fund has similar expected returns as public equity. 
For more information, please see our full white paper here.

Eric Denneny is a member of both the global private equity investment committee and the global credit committee, and he is based in Lincolnshire, Illinois.

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.


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