In a recent FundFire article, Nik Singhal, ORIX USA’s Group Head of Direct Lending, spoke about his outlook for direct lending in 2025. The article examines whether performance of existing portfolios will hold up and whether capital raising for new direct lending vehicles will remain on its recent pace.
Highlights from Nik:
- “The last two to three years were characterized by three strong and significant headwinds for the direct lending market,” said Nik Singhal, citing higher interest rates, high inflation, and strained revenue growth at borrower companies. “All of those headwinds are now turning into tailwinds.”
- The improved conditions – even despite concerns about a Trump administration-sparked tariff war globally – should lead to stronger revenues for companies and more opportunities for direct lenders that have capital to deploy, especially in the middle market where ORIX USA’s direct lending subsidiary NXT Capital is active, Singhal said. “This will really help companies improve their profit margins, and the cost of capital will come down.”
- A more likely scenario is simply worse performance out of those older funds, with numbers that show up in the next year or two, Singhal said. “If you promised 9% but deliver 5%, that is underperformance,” he said. “In the medium run, there will be winners and losers.” And on the fundraising front, it may be more of the same, with many investors still awaiting a regular pace of distributions from older funds before they reallocate to new ones, Singhal said.