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Fundamentals – Vol. 3 How Direct Lending Funds Are Structured – and Why It Matters

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Key Takeaways

  • Lower middle market direct lending functions much like the traditional bank lending it has largely replaced.
  • Conservative fund-level leverage can enhance risk-adjusted returns when applied to high-quality, cash flow-backed loans.
  • Structures such as CLO financing and master pooling can help reduce costs, mitigate risk, support steadier distributions, and essentially eliminate the J-curve typical of private equity strategies.
  • By improving capital efficiency, add-ons can be a key contributor to total return potential beyond what’s spelled out in headline yields.

 

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Contacts

Deerpath Capital

Deerpath Capital is an established private credit manager providing customized, cash flow-based senior debt financing to sponsor-backed U.S. lower middle market companies. With a singular focus on this segment for nearly two decades, the firm has invested over $15.8 billion across more than 1,200 transactions and manages approximately $9.2 billion in AUM as of March 31, 2026. The firm operates through regional origination and underwriting teams in the U.S. which are supported by global investor coverage across major U.S. markets and Australia, Europe, Japan, Korea, and the Middle East. The firm’s focused strategy, deep lower middle market expertise, long-standing sponsor relationships, disciplined credit philosophy, and comprehensive direct lending platform define the Deerpath Difference.

Antonella Napolitano   
Managing Director, Head of Investor Relations   
ANapolitano@deerpathcapital.com

646-786-1019

Nelson Pereira 
Director, Insurance Investor Partnerships 
NPereira@deerpathcapital.com

203-517-6082

 

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