Direct lending’s growing pains
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Direct lending’s growing pains

More and more private equity sponsors in Europe are now comfortable using direct lenders in their deals – indeed many have done so multiple times. After a record volume of fundraising in 2017, funds are competing ever more fiercely for the mandates on offer – and in the process some are losing sight of the real risk adjusted returns that they are chasing.




When London-based alternative asset manager Intermediate Capital Group (ICG) closed its third European senior secured debt fund at €5.2 billion last November, it was a wake-up call for anyone that needed it about the amount of private debt now chasing assets both in the region and worldwide.

In 2017 $56.2 billion was raised globally for direct lending strategies, up from just $24.7 billion in 2016. According to data provider Preqin, there were 348 private debt funds in market at the start of April, seeking $168 billion from investors. Direct lending funds accounted for almost half of that, with 170 funds targeting $74 billion.

The largest fund closings in Europe last year, alongside ICG’s Senior Partners III at €5.2 billion, were Alcentra Clareant European Direct Lending Fund II at €4.3 billion, HayFin Direct Lending Strategy II at €3.5 billion, Bluebay Senior Loan Fund at €2.9 billion and Permira Credit Solutions Fund III at €1.7 billion.

The lure of the strategy is not hard to fathom. Most senior debt strategies target a 5% to 10% gross internal rate of return over one to three years and charge a management fee of around 1%.

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