Speaker cautions on direct lending fund returns

By Mike Peterson

Friday, May 30, 2014

Pension funds and other investors are putting money into direct lending funds based on unrealistic expectations about their likely returns

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TAGS: Direct lending

Comment by: Michael Peterson. Posted 9 years ago [2014-06-04 10:10:37]

Clarification Zachary Webb says that the article above misrepresents what he said in the panel discussion. Rather, he made the following two separate points: Returns of 10% plus on direct-lending portfolios are achievable but concentration risk in portfolios will need to be suitably managed, as a single default of an asset-light business with low recoveries might significantly affect returns. A separate point was that direct lending is becoming a more established asset class. As a result, numerous direct lenders have reported that allocations by institutional investors to the asset class are now coming from investors' credit buckets rather than alternatives buckets, i.e. the hurdle return is now being compared to liquid credit strategies (whereby a 6% hurdle return looks attractive compensating for the additional illiquidity risk) rather than the higher returns of other alternative investments such as private equity.

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