In 2016, the U.S. middle-market will offer compelling investment opportunities to astute sponsors and investors. Broader market volatility will make the year more complex to navigate, but experienced, patient participants in the U.S. middle-market will find opportunities to achieve attractive risk-adjusted returns.

On the positive side, transaction levels should be generally in line with 2015. Ample liquidity will be available, especially from non-bank capital providers. Most companies are expected to grow, particularly those in high-demand sectors such as healthcare and technology.
Yet 2016 will present challenges, including an economy in its seventh year of expansion and the ripple effects of a strong U.S. dollar, volatile energy and commodity markets and slower Asian growth.

During these times, sponsors will turn to experienced, relationship-driven lenders that have been active through economic cycles and behaved rationally when a company had a setback. Investors will favor managers that focus on senior debt, have direct origination expertise and strong alignment with investors’ interests. A manager’s ability to mitigate risk by constructing highly diversified portfolios will be important, as will its proven experience managing through cycles.

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Originally published in Private Debt Investor’s February 2016 issue