Private equity firms are becoming lenders. Here’s why.
The private equity model has held up very well over the decades, continuing to outperform the public markets, even as economic cycles come and go. But the rate of growth has slowed, leading PE firms to seek adjacent areas of business to expand. As PE firms face increased pressure to produce higher returns on their investments, many of them are turning to a familiar area of business: lending.
Middle-market loans offer a potential growth path for PE firms, many of whom view credit as a natural extension of their bread-and-butter operations. Moving into middle-market loans also takes advantage of the expertise firms have developed as investors in nurturing businesses. And, as interest rates continue to fall, demand for loans is expected to rise.