Direct lending has demonstrated stable performance throughout periods of valuation volatility, Legal & General has said.
In a new report, the firm said historic performance data shows “a stable performance profile through market cycles”.
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“Using direct lending as an example, it consistently generated annual income returns of around 10 per cent. This mitigated against valuation volatility which can be largely driven by changes in credit risk (direct lending is floating rate and therefore not exposed to interest rate risk),” the firm explained.
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The firm said that with regard to private markets as a whole, historic data shows “buying the dip” and accelerating deployment during market dislocations has worked.
“This underpins our more positive view on real estate and investment-grade private credit, where current yields are notably higher than long-term average,” it said.
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“Private market investing requires a long-term approach. We prefer to invest through the cycle, adopting a well-diversified strategic asset allocation.”
