The missing piece in private credit allocations

Chris Rust and Lei Lei explain the benefits a sponsorless lending strategy can bring to private credit allocations and examine common misconceptions around the associated risks. Investors have embraced sponsored direct lending in their private credit allocations for some time, but many are yet to explore the sponsorless* private credit market. This is partly owing to common misconceptions around the associated risks. However, well-structured loans to sponsorless borrowers can offer attractive risk-adjusted returns, robust downside protection and valuable diversification – especially if the loans are asset-backed and originated by a manager with the relevant experience, skill set and market access. This piece discusses:

• The sponsorless lending opportunity set in the European mid-market
• Common misconceptions around the risks associated with sponsorless lending
• How exposure to a well-designed strategy can offer valuable benefits to investors

*‘Sponsorless’ refers to borrowers owned by entrepreneurs, families and shareholders other than private equity funds.Download PDF