Why Portfolio Construction Matters (Third of a Series)

Many direct lenders have oriented their platforms around financing only businesses backed by private equity sponsors. While non-sponsored strategies have certain benefits, the presence of an owner with its own separate track record, select industry experience, and deal sourcing prowess to draft behind, gives relationship lenders distinct advantages.

This is particularly true when it comes to building a healthy, diversified, all-weather portfolio. Besides the mix of industries, structures, and terms credit managers can play with, there’s the additional dimension of varying sponsors based on a number of investment categories.

Each private equity sponsor comes to the table with different strategies. Some are growth investors seeking businesses with upside revenue potential. These sport loftier purchase price multiples, but higher cash equity-to-capital ratios add cushions for lenders.