Private Credit: Financing the Real Economy

Summary

Brian Holzer interviews Blue Owl's Logan Nicholson about private credit, especially corporate direct lending. Nicholson explains why borrowers choose private credit, argues the direct lending market is healthy and taking share from public markets, and says it has delivered return premiums over high yield and loans. He also discusses the portfolio construction tradeoff of giving up some liquidity and the trend of companies staying private longer.

• Private credit is a broad category; direct lending is a roughly $1.5 trillion sub-investment grade corporate market.
• Borrowers choose private credit for partnership, lower all-in costs, confidentiality, and customization.
• Direct lending has outperformed the high yield market and leveraged loan market by 300-400 basis points over a long period.
• Default/non-accrual rates in direct lending are at the low end of the last three years' range.
• Direct lending share of the sub-investment grade corporate market is about one-third and rising.
• Companies are staying private longer, which increases demand for corporate lending markets.
• Investors need to weigh giving up some liquidity in private fund structures against potential return benefits.