Market Outlook Shows Guarded Optimism for Commercial Loan Originations and Direct Lending Industries
The Securitized Products Group (SPG Americas) has analyzed the major findings of a survey conducted at the CIB 7th Annual Direct Lending Finance / CLO Forum in New York. Over 225 professionals attended the conference, including direct lending originators, financing professionals, private equity sponsors, economists, investors, and Chief Executive Officers.
The survey gathered insights from a diverse range of respondents, offering a comprehensive view of the sentiments and expectations within the Collateralised Loan Obligation (CLO) market. The results suggest a cautiously optimistic picture, marked by expectations of increased Mergers and Acquisitions (M&A) activity.
Nearly half of respondents (48.15%) predict that risk premiums will widen in the CLO market. This cautious optimism is further supported by 48.15% of respondents expecting a modest acceleration in M&A activity in the near to mid-term. However, while there is optimism about increased M&A activity, there are also prevailing uncertainties that may hinder more aggressive growth.
The growing appetite for CLO investments aligns with the expectation of a modest increase in the use of Rated Feeder structures. With 54.32% of respondents expecting an increase in acceptance and usage, the survey indicates a trend towards more sophisticated investment strategies in the private credit market.
The survey also highlighted a trend of consolidation in direct lending and private credit. BlackRock purchased HPS Investment Partners, Blue Owl Capital made multiple acquisitions including Kuvare Asset Management and Atalaya Capital Management, and Wendel Group acquired Monroe Capital. This consolidation, as indicated by 76.54% of respondents, points towards a trend towards a more concentrated market.
There was a focused discussion of alternative sources of capital to direct lenders beyond traditional CLOs, LP/GP structures and Business Development Companies (BDCs). This suggests that participants are preparing for a dynamic and evolving landscape in the Direct Lending and CLO sectors.
Despite concerns about risk premiums and market concentration, the survey results underscore a positive outlook for the CLO market. With a growing appetite for CLO investments and a trend towards increased M&A activity, the market appears poised for growth in the coming months.
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