The growing focus on core mid-market direct lending has brought challenges for investors as spreads compress and looser/cov-lite or cov-zero credit agreements become the norm. As highlighted in this article, Texas ERS offers an alternative approach: focusing on smaller, niche managers in the lower mid-market.
While smaller managers face fundraising challenges, their funds often outperform once operational and we believe the lower mid-market offers compelling pricing benefits and reduced competition.
The Texas ERS portfolio exemplifies the value of this strategy, delivering a five-year private credit return of 14.1%. Their approach highlights the strength of being able to strike bespoke agreements with smaller borrowers and demonstrates the resilience of these investments amid a varying economic backdrop.
As a real estate credit investment manager focussed on the lower middle market this philosophy resonates strongly with our strategy and approach. Identifying overlooked opportunities in niche markets is a key way to generate alpha while maintaining strong underwriting standards. It’s a powerful reminder that taking a more focused, deliberate approach can translate directly into better returns.
What’s your take on the opportunity in the lower mid-market?
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