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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.

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