Direct lending is European investors’ preferred strategy

According to new research, direct lending ranks ahead of mezzanine and distressed strategies in terms of prospects over the next two years.

Direct lending is the most popular private debt strategy according to research from fiduciary services provider Elian, which canvassed the views of European institutional investors.

Asked which strategies they liked over the next 12 to 24 months, 55 percent of investors cited direct lending, as fund managers increasingly occupy a space that was traditionally the preserve of the banks.

The second most popular strategy, mezzanine, attracted 48 percent of the votes, followed by distressed debt on 42 percent.

“Fund managers have been drawn to the direct lending space following regulations introduced after the financial crisis that have made it harder for banks to provide financing to businesses,” said Charles Le Cornu, head of private equity at Elian. “As European banks shed assets this trend will only continue, increasing the demand for direct lending.”

However, while regulation may have given direct lending a boost post-crisis, it is also seen as the biggest obstacle to further growth in the market by 60 percent of respondents.

Other concerns included the ability to fund raise (37 percent), maintaining a low cost of capital over the long term versus traditional banks (35 percent), a resurgence in bank lending (32 percent) and performance (27 percent).