Stan Sokolowski, Deputy Chief Investment Officer and Senior Portfolio Manager, and Homyar Choksi, Direct Lending Deputy Chief Investment Officer and Senior Managing Director at CIFC Asset Management, joined Keith Black, Managing Director of RIA Channel, to discuss opportunities in the credit markets.
CIFC is a $45 billion asset manager founded two decades ago by JP Morgan credit executives. Today, the firm works with 500 clients globally across retail, institutional, and private wealth. CIFC invests in senior, secured loans, CLO securities, private credit, and opportunistic credit. The goal is to offer investors stability, resiliency, and income. The direct lending platform primarily focuses on the lower middle-market, which Choksi defines as companies with revenues between $50 million and $500 million.
Sokolowski notes that credit is delivering stability today, where traditional fixed-income assets have been failing. The short duration of senior secured loans protects against the volatility of changing rates, with structures that can provide downside protection in times of challenges. Private credit can earn double-digit yields by lending to stable middle-market companies. CLO securities offer double-digit yields in liquid public securities that range from investment-grade to below-investment-grade.
In 2024, 60% of all funds raised in private credit were destined for direct lending, with 80% being loaned to upper-market companies. The performance of direct lending strategies has been strong, relative to fixed-income and other credit strategies. The lower middle-market may offer the best value in direct lending. This segment has five times as many borrowers and four times as many private equity funds buying these firms compared to the upper market. Lending in the upper market has become extremely competitive, as pricing and terms are compared with the high-yield bond and broadly syndicated loan markets. Loans to lower middle-market companies may earn 100 basis points in higher yield, with at least one turn lower leverage, and stronger covenants and documentation.
Resources: