Prospective investors often ask, “Why does NXT Capital focus on the sponsored market? Why not source opportunities directly?” These are good questions. Their answers reveal a fundamental difference in a manager’s strategy that has far-reaching impact on investors.

For NXT Capital, the answer is clear: In the lower-middle market, we believe that a private equity-sponsored strategy provides stronger, more stable risk-adjusted returns over the long term. This is the result of more effective deal sourcing and due diligence, availability of growth capital and management expertise, and support throughout the life of a loan. In our opinion, the slightly higher upfront yield that a direct strategy may offer today creates additional risk.

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