The lower middle market presents a distinct investment opportunity—offering enhanced yield and return potential with lower volatility, while providing important diversification benefits.
Our team, process, and resources allow us to focus on less competitive aspects of the market, including lower middle market and non-sponsored opportunities. Our flexible solutions offered to borrowers and sponsors provide us a competitive advantage to originate loans that other lenders cannot address.
Targeting lower and core middle market: Borrower size of $5-$50 million EBITDA can potentially provide higher expected return relative to risk and better structure than the upper middle market.
Alignment of interest: Principal invests alongside our investors in every deal including strategic co-investment in funds.
ESG integration: We engage borrowers to assess risks and opportunities, assigning an ESG score for every loan.
Diverse origination capabilities: Dedicated regional coverage of more than 400 select sponsors plus non-sponsored loan origination direct with borrowers, through advisors and the Principal client network.
Intentional portfolio construction: Our team originates loans in targeted industries and help avoid those prone to higher defaults.
- Historically generated higher yields than most other fixed income strategies
- Comparable returns to public equities and other alternative investments
- Has historically performed well across varied interest rate environments
- Lower and core middle market direct lending has historically exhibited favorable default and loss experience
- Performance is often not well correlated with other types of assets or with the business cycle
- Universe size helps create more diversified portfolios, by accessing opportunities unavailable to investors limited to public markets
- Typically, less sensitive to public market price volatility
- Emphasis on companies with low cyclicality and stable cash flow
- Loans are at the top of the capital structure with collateral offering attractive downside mitigation
- Robust covenants can restrict some activities and require companies to maintain specific leverage
Add diversity to your portfolio, alongside the potential for enhanced yield and returns. Hear from Tim Warrick, Group Head of the Direct Lending team, as he explains what direct lending is, makes the case for lower to core middle market direct lending and provides an outlook for the asset class.
Private Credit Direct Lending
Focused on providing attractive risk-adjusted returns through lower and core middle market direct lending in the U.S.
The Direct Lending team is comprised of seasoned lending professionals, many of whom have worked together for more than 20 years. We have extensive experience across originations, underwriting, and portfolio management, with significant credit investing experience across all major industries and through multiple credit cycles.
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Footnotes
Past performance does not guarantee future results.
Asset allocation and diversification do not ensure a profit or protect against a loss.
Investment criteria/guidelines are subject to change.
Investments in private debt, including leveraged loans, middle market loans, and mezzanine debt, second liens, are subject to various risk factors, including credit risk, liquidity risk and interest rate risk.
ESG integration is considered across all actively managed asset classes, with the approach determined by each investment group’s process. This information is specific to the strategies managed by the individuals providing this content and various investment teams across Principal may have differing views of this approach.
Fixed‐income investment options are subject to interest rate risk, and their value will decline as interest rates rise.
Principal Alternative Credit is an investment team within Principal Global Investors.