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Investment outlook

Investing in middle market senior secured loans

Metal Rotar

Executive summary

One of the characteristics of the loan market since the credit crisis in 2008 has been a dearth of senior loan capital available to middle market companies. Historically, these companies have not had the access to the broader debt capital markets afforded to larger, more liquid borrowers, and are generally too small to be financed by public loan mutual funds or institutional loan investors. At a moment when interest rates remain low and public equity and credit securities seem fully valued, the investment opportunities in middle market loans look very compelling.

Middle market companies are seeking more loans to finance growth as the economy expands

This means that it is possible for an established, experienced lender to construct a high-quality loan portfolio, producing a potentially attractive risk-adjusted return. One of the components of this return is the so-called “illiquidity premium” associated with middle market loans, reflecting the recognition by institutional investors that smaller loans are less liquid than their more broadly syndicated counterparts. Middle market loan originations are designed as buy-and-hold investments and require a high level of due diligence on the part of the investor. However, the senior secured position of these loans in the capital structure provides downside protection when compared to other loans or equity. The floating-rate nature of middle market loans mitigates interest-rate risk and provides increased returns in a rising interest rate environment.

Benefit from our experience

At Nuveen, we have developed a robust investment process, and a team that is experienced at structuring these loans and constructing middle market loan portfolios. This puts us in a good position to take advantage of the demand for capital, particularly from private equity sponsored companies, a market segment where we have years of investing experience. In this primer, we will outline the case for this strategy, and its potential risks and rewards.

The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

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Risks and other important considerations

Churchill Asset Management is a registered investment advisor and an affiliate of Nuveen, LLC.

Churchill Asset Management is a registered investment advisor and an affiliate of Nuveen, LLC.

This document is solely for the use of wholesale clients and is not for general public distribution.

This document is issued by Nuveen Real Estate (Australia) Limited ABN 98 168 690 444, AFSL 460770.

This document is intended solely for the use of wholesale clients, as defined in section 761G of the Corporations Act 2001 (Cth) and is not for general public distribution.

This material is provided for informational or educational purposes only and does not constitute a solicitation of any securities in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. 

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, certain historical performance information of other investment vehicles or composite accounts managed by Nuveen may be included in this material and such performance information is presented by way of example only. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Nuveen to be reliable, and not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Company name is only for explanatory purposes and does not constitute as investment advice and is subject to change. Any investments named within this material may not necessarily be held in any funds/accounts managed by Nuveen. Reliance upon information in this material is at the sole discretion of the reader. Views of the author may not necessarily reflect the view s of Nuveen as a whole or any part thereof. 

Past performance is not a guide to future performance. Investment involves risk, including loss of principal. The value of investments and the income from them can fall as well as rise and is not guaranteed. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate.

This information does not constitute investment research as defined under MiFID.