Direct lending

Loans made by private funds rather than banks straight to mid-sized companies, usually senior, secured and floating rate. Steady contractual income with a premium for illiquidity and complexity.

Where you will meet it

Direct lending appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Outline the main types of private debt
  CFA Level I · Alternative Investments

  “Private debt covers direct lending to companies too small or too complex for the syndicated market, mezzanine debt that sits between senior loans and equity and often carries warrants, venture debt lent to young companies alongside equity rounds, and distressed debt bought at a discount in expectation of restructuring.”

• Weigh risk and return across private credit strategies, and set them against other private market assets, in a strategic allocation
  CFA Level III · Private Markets Pathway

  “Private credit runs from senior direct lending, with floating-rate contractual income and the lowest risk, through unitranche, mezzanine and venture debt to distressed debt, which behaves like equity.”

• Contrast the risk-return profiles of different special situations strategies, and of special situations versus other private debt, in a strategic allocation
  CFA Level III · Private Markets Pathway

  “Compared with direct lending, special situations target higher returns, pay less current income, and depend more on capital gains and lumpy, uncertain timing.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with D · Glossary