From Breakingviews - Guest view: Direct lending may be entering new era
Direct lenders provide loans to businesses without using an intermediary. This form of private credit has grown dramatically in the last decade, with total assets under management rising nearly seven-fold since the global financial crisis of 2008 to reach roughly $800 billion by mid-2022, according to Preqin.
I believe direct lenders’ market share will increase significantly in the future due to the substantial mismatch of supply and demand that has emerged in the market for funding large-scale LBOs. This is especially true after the recent failure of Silicon Valley Bank. Its collapse reminded investors of the vulnerabilities that can be revealed when interest rates rise rapidly following a long period of easy money – and how quickly a shortage of liquidity can turn into a capital problem.
In 2022, CLO net issuance was down by over 30% compared to 2021, and loan funds recorded roughly $11 billion in outflows. I believe previous levels of demand in the loan market are unlikely to return quickly, as this would probably require a return to the macroeconomic conditions that existed before 2022.
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