Key Takeaways
- • CVC Capital Partners argues direct lending's durability rests on senior secured positioning, floating-rate income, stronger bilateral documentation and direct lender control, with the asset class delivering higher annualised returns at lower volatility than leveraged loans and high yield over the past 10 years, per the firm's analysis.
- • CVC cites a spread premium of roughly 150bps over broadly syndicated loans (BSL) as persistent and defensive, and says it is supported by the continued relevance of Original Issue Discount (OID).
- • CVC says software exposure in U.S. BDCs, which account for roughly 21% of aggregate portfolio assets, warrants scrutiny, but characterises recent volatility as sector stress and sentiment-driven rather than systemic risk.
- • Software represents 17.6% of U.S. private debt issuance over the past five years versus 10.9% in Europe, and CVC frames Europe as a less competitive, more lender-friendly market offering growth potential as banks retreat.
- • The U.S. accounts for 72% of the MSCI World Index by market capitalisation, and CVC argues this concentration is prompting investors to rebalance toward European private credit.
Summary
CVC Capital Partners' publication makes the structural case for direct lending, arguing that the asset class's track record through past cycles rests on structural protections, disciplined underwriting and diversification. The firm contends these features become more valuable as market narratives and macroeconomic conditions shift, and it highlights selectivity, downside resilience and regional differentiation as key drivers of the asset class's next phase of performance.
According to CVC, direct lending's typically senior secured position, spread premium, stronger documentation, floating-rate coupons and direct lender control support resilience through the credit cycle. The firm states that spreads over broadly syndicated loans have historically been persistent and currently stand at roughly 150bps. Over the past decade, CVC says these features delivered higher annualised returns at lower volatility than leveraged loan and high yield markets, and that risk-adjusted returns remain more attractive even after adjusting for the smoothing effect of quarterly reporting. The firm also notes the asset class's markedly lower correlation to the traditional 60/40 portfolio.
CVC points to European growth potential. It states that companies still source 88% of debt financing from banks in Europe, where capital and liquidity rules have made leveraged, long-dated private lending less economical for banks. The firm says private credit adoption in Europe still trails the U.S. by a wide margin, and it identifies midmarket companies with EBITDA of €25m–€100m as a core origination segment for private equity sponsors.
On software, CVC acknowledges that concentration in U.S. private credit portfolios has drawn bearish headlines this year. It notes software accounts for roughly 21% of aggregate BDC portfolio assets, with higher proportions at some outlier funds, and says software exposures range from zero to more than 30% among some of the largest BDCs. CVC argues that risk varies by borrower, fund and region, and that some BDCs trade at double-digit discounts to NAV. The firm says its own approach has been highly selective, resulting in a reduced emphasis on software relative to the broader market, and that it uses a proprietary 'Software Scorecard' to assess AI-related risk.
CVC also argues that the U.S. accounts for 72% of the MSCI World Index, with the top 10 constituents all U.S.-listed, and that this concentration is prompting investors to rebalance toward European private markets.
According to CVC, direct lending's typically senior secured position, spread premium, stronger documentation, floating-rate coupons and direct lender control support resilience through the credit cycle. The firm states that spreads over broadly syndicated loans have historically been persistent and currently stand at roughly 150bps. Over the past decade, CVC says these features delivered higher annualised returns at lower volatility than leveraged loan and high yield markets, and that risk-adjusted returns remain more attractive even after adjusting for the smoothing effect of quarterly reporting. The firm also notes the asset class's markedly lower correlation to the traditional 60/40 portfolio.
CVC points to European growth potential. It states that companies still source 88% of debt financing from banks in Europe, where capital and liquidity rules have made leveraged, long-dated private lending less economical for banks. The firm says private credit adoption in Europe still trails the U.S. by a wide margin, and it identifies midmarket companies with EBITDA of €25m–€100m as a core origination segment for private equity sponsors.
On software, CVC acknowledges that concentration in U.S. private credit portfolios has drawn bearish headlines this year. It notes software accounts for roughly 21% of aggregate BDC portfolio assets, with higher proportions at some outlier funds, and says software exposures range from zero to more than 30% among some of the largest BDCs. CVC argues that risk varies by borrower, fund and region, and that some BDCs trade at double-digit discounts to NAV. The firm says its own approach has been highly selective, resulting in a reduced emphasis on software relative to the broader market, and that it uses a proprietary 'Software Scorecard' to assess AI-related risk.
CVC also argues that the U.S. accounts for 72% of the MSCI World Index, with the top 10 constituents all U.S.-listed, and that this concentration is prompting investors to rebalance toward European private markets.
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