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.

16 May 2023

6 minutes

Christophe Rust
Lei Lei

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:

  1. The sponsorless lending opportunity set in the European mid-market
  2. Common misconceptions around the risks associated with sponsorless lending
  3. 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.

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General risks. All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Specific risks. For professional investors and financial advisors only. Not for distribution to the public or within a country where distribution would be contrary to applicable law or regulations.

Authored by

Christophe Rust
Lei Lei

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