Direct lending is becoming more crowded and on track to becoming oversubscribed, Fintex Capital’s chief executive has warned.
Robert Stafler, who also founded the alternative credit manager, highlighted that most of the large sums of money being raised in private debt are being earmarked for direct lending.
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“Direct lending is naturally becoming more crowded,” said Stafler. “We believe the opportunities really lie in areas that aren’t crowded.
“If direct lending isn’t oversubscribed yet, I think it soon will be.”
He added that the rise in popularity of direct lending and other private debt verticals such as asset-backed lending, will lead to rising competition at the larger end of the market. This means that smaller investors like Fintex Capital can continue to focus on more niche deals.
Fintex recently closed a £10m deal to provide asset-backed financing to urban bike company Forest. Stafler said that in order to stand out in an increasingly competitive marketplace, Fintex is choosing to prioritise “small and complex” deals.
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“We see credit value in niche spaces, where there is less competition,” he added. “In a tsunami of cash, there are still some islands of opportunity left. And those islands are there primarily because of the interplay between deal size and complexity.”
Fintex recently raised its minimum deal size to between £5m and £20m, up from between £3m and £7m previously.
“As soon as you start to cross the £15m threshold the environment starts to become more competitive,” said Stafler.
“If I want to deploy £30m I’m better off doing that in two £15m deals rather than one deal because there is less competition. And less competition breeds better investments.”
Stafler added that the Forest deal was funded by the firm’s flagship UK fund, Fintex Private Debt, which won the accolade of Performance of the year (Sub $1bn) at last year’s Alternative Credit Awards.
Last year Fintex doubled its UK assets under management. To date, the firm has invested approximately £350m.
