Fast reading:
- An allocation to direct lending, focused on the right strategy, can provide an investor with low volatility, limited correlation to other asset classes, diversification to underlying industries, quarterly cash income and an element of inflation protection.
- Out of three main categories of underlying debt – mezzanine, unitranche and senior secured – we believe the latter offers investors the best risk-reward profile at the present time.
- In the lower mid-market, significant improvements can be seen in lender protections in loan documentation. Lenders also have greater negotiating power in terms of loan documentation, creating space to negotiate the inclusion of ESG-linked clauses.
- In northern Europe, investors are lending into the most creditor-friendly jurisdictions, as opposed to pan-European or the US. These are geographies where lenders have tried and tested the legal systems regarding insolvencies.
Further information on Federated Hermes’ Private Credit capabilities.
Locating the sweet spot in direct lending
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