Direct lending’s top spot in strategy preference was followed by distressed and special situations strategies, reflecting a desire for investors to earn a premium return over what the plain-vanilla direct lending work can offer today.

Specialty finance and asset-based lending strategies took third place in the rankings as investors look to diversify their portfolios away from corporate credit and into non-correlated or diversified exposures, with junior debt and mezzanine strategies also piquing interest.

Real asset-backed strategies are also receiving significant attention from investors looking for discreet asset protection with seniority on commercial real estate and infrastructure facilities.

Within direct lending today, almost half (46%) of investors polled view the core middle-market (defined as financing businesses with EBITDA between $30 – 100 million) as their preferred market segment, as opposed to the lower mid-market at 32% preference, followed by the upper mid-market with 22% preference.

Geographically, US-based strategies just clinched the top spot with 52% of investors expressing preference in the world’s largest developed economy.

European strategies were not far behind at 44%, followed by Asian strategies at 4%. This marks an increased interest in Europe versus the US, where the estimated assets under management so far in private credit are far outpaced in Europe versus North America.

As the private credit market continues to mature, another important and emerging theme is investors’ ability to access portfolios and assets through the secondary market, either directly or through funds.

When asked about exposure to the private credit secondary market, it transpires that only 33% LPs do have an active secondary program, with 66% yet to venture into this space. Of those investors currently accessing the secondary market, only one third are doing so directly, with the remainder choosing to go through fund managers.