Growth in Direct Lending

September 22, 2016

This week’s chart shows the significant growth in direct lending over the last decade, as indicated by the number of funds and amount of capital raised.

Direct lending is defined as a loan made by a private entity to a small–medium size company which generally carries a floating interest rate. The loans have a 3- to 5-year term and are in most cases held to maturity. For some perspective, this space was largely dominated by commercial banks and proprietary trading desks at investment banks leading up to the global financial crisis of 2008 when private lenders had little market share. The landscape has changed since then as banks now face significant regulatory pressure as a result of the Basel III and Dodd-Frank bills, which call for higher risk-based capital charges for non-rated loans and an increase of 25% or more in Tier 1 capital ratios by 2018, making the practice of direct lending an increasingly inefficient use of bank balance sheet capital.

As a result, banks today are virtually inactive in this area and direct lending by private investment managers has emerged as a natural structural replacement. On the demand side, the current low global interest rate environment is fueling increased appetite for this strategy as investors continue to search for yield and diversification in their portfolios.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content


A Falling Tide Lowers All Boats

The resilience of the American consumer has been an unanticipated phenomenon in the four years since the outbreak of the…


The “Fix” Is In!

The strength of the U.S. economy over the last several quarters has surprised many investors, as consensus expectations from the…


The Emergence of Argentinian Equities

Argentina has faced myriad economic headwinds in recent time, including hyperinflation, currency-related difficulties, and a series of defaults on its…


Is Bitcoin Fairly Valued?

Despite mixed performance to start 2024, bitcoin finished the first quarter up roughly 68%. Buoyed by a broad weakening of…


1Q 2024 Market Insights Video

This video is a recording of a live webinar held April 25 by Marquette’s research team analyzing the…


Mind the Gap

Any ride on the London Tube reminds riders to mind the gap: Beware the space between train car and platform…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >