We began our visit to the Japanese capital this week on a panel at S&P’s Tokyo Seminar 2025 entitled, “Private Credit, Middle Market CLOs and Fund Finance.” Here’s a synopsis: 

How do middle-market CLOs fit into the broader private credit ecosystem, and why are they seeing so much growth now? Private credit CLOs are the natural evolution of the securitized structures alongside private funds. They are increasingly complex structures and more efficient forms of financing. Benefits include easier ramps with quicker drawdowns. For BDCs, commingled funds, and SMAs, CLOs are cheaper alternatives to ramping vehicles from banks financing the assets, with the former spreads of 150 bps, and the latter, 200 bps.

Given economic uncertainty, the increased odds of a recession and the likelihood of fewer rate cuts this year, how are your portfolio companies performing? If you are one of the 5% of direct lenders with track records before the GFC, you learned to construct portfolios with US-centric, middle market borrowers in service sectors, backed by top PE firms. This allows them to withstand all types of rate and economic cycles. You never know what sets them off, but you know what the impacts are. Niche leading businesses with high barriers to entry and flexible cap structures can stay resilient through a downturn or shock. Interestingly, 74% of our borrowers showed positive Ebitda growth last quarter, up from 66% in Q4 2024.