Across private wealth portfolios, private credit has become something of a buzzword – frequently cited, but often misunderstood. At the Investment Leaders Forum in Byron Bay, Justin Hooley, head of Australian private credit at Barings, brought clarity to the category with a deep dive into its structural complexity, sector segmentation, and the due diligence discipline required to navigate it well.
For several years, investors, from institutional to retail, couldn’t get enough of the tech stocks with all their promises of future growth. But now the market has spoken and it’s saying precisely this – valuations matter again.
Why direct lending deserves a place in private wealth portfolios
Blue Owl’s ascent is impressive. Only formally branded in 2022, the New York-based alternative investment asset management firm now manages more than $250 billion in assets, with $100 billion dedicated to private credit. As Valtwies noted, “We didn’t grow this fast by accident.” The firm’s sharp focus on direct lending – specifically, sponsor-backed transactions – has placed it at the centre of a secular reallocation. As banks retreat, direct lenders are stepping into the breach, bringing capital to the mid-market with speed, customisation, and discipline.
Valtwies framed direct lending not as a replacement for public markets, but as an evolution. “Your clients are still going to hold equities and traditional bonds,” he said. “But the shift into private markets is real – and impossible to ignore.” For Valtwies, the trend is not just structural but philosophical. At Blue Owl, everyone – from sovereign funds to IFAs – gets access to the same deals, at the same prices. It’s a model built on alignment, not exclusivity.
So what exactly is direct lending? Valtwies put it plainly: non-bank financing to private companies, typically in partnership with a private equity sponsor. Think of a $1 billion transaction where a PE sponsor puts up $600 million in equity, and Blue Owl provides the remaining $400 million in senior secured debt. The loans are floating-rate, covenant-heavy, and entirely originated and structured in-house. “No syndicated desks, no ratings agencies, no off-the-shelf risk,” he said. “Just bespoke lending, built from the ground up.”
That hands-on structure is critical. Blue Owl has more than 100 credit analysts conducting due diligence. “We don’t just take the sponsor’s word for it,” Valtwies said. The firm’s process includes stress-testing, covenant layering, and active monitoring. “We want to make sure that if something goes wrong, we have step-up agreements, early warnings, and protections that kick-in.”
Importantly, the direct lending market has evolved rapidly. Ten years ago, deal sizes were US$100 million–$200 million. Today, Blue Owl regularly participates in $1 billion transactions, sometimes solo, sometimes with a syndicate. “We’re one of the only firms in the world that can write a billion-dollar cheque,” Valtwies noted. That scale matters – not just for access to opportunity, but for resilience. Larger balance sheets mean more robust borrowers and better recovery outcomes when defaults occur.
For investors, the potential appeal of direct lending is threefold: consistent income, capital preservation, and diversification. The illiquidity premium is real and persistent. Floating-rate structures offer protection in rising rate environments. And the structural subordination of PE equity provides a meaningful cushion. “We get paid first,” Valtwies said, only half-joking. “It’s ‘dollar one’ senior secured.”
He also sought to dispel myths around opacity. In the U.S., direct lenders are required by the SEC to disclose holdings quarterly. “Our full portfolio – 330 loans – is there on our website,” Valtwies said. “Origination, repayments, performance – it’s all there.” That level of transparency, he argued, rivals and sometimes exceeds what’s available in public bond markets.
On the borrower side, direct lending offers speed and flexibility. The cost of capital may be higher than the broadly syndicated loan (BSL) market, but the trade-off is control. Sponsors get certainty of execution, rapid turnaround, and terms that can be tailored – not dictated by underwriters. “In stressed markets like 2022, we were one of the only games in town,” Valtwies recalled. “Banks were out. We stayed open.”
The macro story is just as compelling. By 2030, private markets are expected to exceed US$28 trillion in assets under management (AUM), with direct lending as the dominant segment within private credit. That growth is not just cyclical – it’s regulatory. Post-GFC rules discourage banks from engaging in this type of lending. And central banks, Valtwies argued, don’t want them back in. “If a bank misprices a loan to mum and dad, that’s a systemic risk. If we do, it’s our problem.”
As for how to allocate, Valtwies recommends investors start by understanding the structure. “This isn’t just yield-chasing,” he said. “You’re getting first-lien exposure to private companies with significant equity subordination.” Historically, direct lending has delivered 8 per cent-plus returns in three-quarters of years. That consistency, paired with low correlation to traditional assets, is what makes it portfolio-relevant.
Valtwies closed by reminding delegates that while direct lending might be new to many advisers, it’s hardly untested. “We’re not building a startup,” he said. “We’re institutionalising an asset class that’s already transformed the way companies raise capital – and giving you the chance to participate.” In a market defined by dislocation and dispersion, that may be the kind of access that matters most.
