- This paper discusses direct lending strategies, a growing segment of the private debt market, which Aon Hewitt Investment Consulting, Inc. (AHIC) believes could be a potential fit for certain portfolios.
- Private debt includes a wide range of illiquid credit strategies, including distressed debt, direct lending, mezzanine debt, special situations, and venture debt.
- U.S. banks have significantly scaled back their middle-market lending activities post-2008 and the subsequent introduction of more stringent banking regulations. Since the beginning of 2009, we have seen European banks restrict their middle-market lending activities as well. The lack of “traditional” bank lending in this space has created the opportunity for attractive risk-adjusted investment opportunities.
- Direct lending strategies are typically accessed by investors through closed-ended vehicles with an expected life of seven to 10 years. Because of the illiquid nature of small- and middle-market loans—which are the segments of the market primarily targeted by direct lending strategies—our capital market assumptions for a typical leveraged direct lending fund has similar expected returns as public equity.
For more information on direct lending, download the full whitepaper above.
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About Aon Hewitt Investment Consulting, Inc.
Aon Hewitt Investment Consulting, Inc. (AHIC) is the U.S. investment consulting practice of Aon, with headquarters in Chicago, Illinois. AHIC is a Registered Investment Advisor with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940, as amended. AHIC is also registered with the Commodity Futures Trading Commission (CFTC) as a commodity pool operator and commodity trading advisor, and is a member of the National Futures Association (NFA).
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