Fast reading
- An increasingly crowded direct lending landscape and sluggish buy-out activity has raised competition and led to mounting pressure on lenders to deploy.
- Traditionally, sponsor-backed lending has been the preferred route for direct lending expansion, with buy-out M&A activity supporting the rapid deployment of direct loans to sponsor-backed borrowers, considered to be higher-quality credits.
- We believe that, in this increasingly uncertain climate, investors should direct their focus towards the northern European lower mid-market, and broaden their scope to include sponsor-less loans.
- Sponsor-less transactions in the lower mid-market space have the benefit of providing portfolio diversification, along with the potential for enhanced risk-adjusted returns.
- At Federated Hermes, our strategy focuses on lending to conservative, stable businesses in the northern European lower mid-market, across both sponsored and sponsor-less borrowers.
Diversifying direct lending portfolios through sponsor-less lending
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