Tod Trabocco, managing director, expects as interest rates go up, commercial banks will become more interested in lending opportunities, leading to potentially greater competition between direct lenders and commercial banks.

Notably, Trabocco sees alpha for direct-lending investments to be about minimizing losses by making good credit decisions, finding the right sponsors, making the right terms, and maximizing recovery in case anything goes wrong.

“There are barriers to entry; you need a team of qualified people to go find investment opportunities, you need a team that works closely together. That’s where the impact comes in. Those barriers are being eroded, so the alpha should come down. And you’re seeing it already because you are seeing spreads compress,” Trabocco says.

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