Despite Covid-19 the rush to direct lending continues

30 April 2021

The FT has reported that Ares have raised an €11bn fund.  According to Prequin this will be Europe’s largest fund of its type. In addition, Private Debt Investor have released their fundraising report for Q1 2020 which found that despite only 34 funds being raised in Q1 (globally) the average size of those funds had breached the $1bn mark for the first time, with the average fund size more than twice those raised in 2016. 

This indicates (as widely reported) that investor capital is becoming more concentrated in established managers who are then able to lend larger facilities and diversify further into markets currently untapped by private credit.

Prior to the global pandemic in March 2020 the FT warned of the asset class in “bubble territory”, however more than twelve months on, much of the economy has been closed for the best part of a year, Europe has plunged into a recession and yet record breaking funds are still being raised by debt managers.

If anything the Covid-19 market disruption has proved how valuable private debt is to the economy and has been a time for innovation, collaboration and change for the community.


Aside from the health impact of Covid-19, liquidity was the primary issue for most companies.  Sponsors, portfolio companies, their lenders and other stakeholders have had to look at new capital solutions to bridge a gap in liquidity.

Additionally, terms in existing documentation have adapted as the needs of borrowers have become more nuanced.  The product suite of direct lenders and the lenders themselves have proved to be highly adaptable and flexible with even the largest credit funds being capable of acting nimbly in a fast paced environment compared to other types of lenders.  


Practically overnight, portfolio companies in certain sectors ceased to trade and whilst the pros and cons of the various government support schemes were extensively covered in the press, the collaborative approach of the private funds community was less widely reported.

Relationship lending (being a cornerstone of private credit) was never more important. The reactions of market participants when working through stressed structures may well cement relationships between borrowers, their private credit providers and advisors for years to come, as they worked together to preserve value and jobs.

The future 

The concerns of many that cov lite, EBITDA add backs and the general weakening of documentation terms over the last decade are valid, however what has become clear is that no amount of early warning signs and improved covenant strength could have fully prepared the market for this real world disruption.

However, despite this test, the outlook remains positive, the bubble hasn’t burst and if anything the market has proven that the fast, collaborative, flexible capital offered by direct lenders is highly attractive for both sponsors and portfolio companies. As this recent news suggests, LPs continue to find the returns provided by the larger private debt managers a highly attractive investment opportunity and as the diversification of the product suite of direct lenders continues, so does the opportunity for both investors and borrowers.  

"It is the latest sign of a power shift that has taken place since the financial crisis..."