Private Debt: Seeking Alpha in the Lower Middle Market

In this new whitepaper, commissioned by Heard Capital, Bella Private Markets investigates trends and opportunities in the lower middle market (LMM) of the private debt industry. Private debt fundraising has expanded considerably over the past decade, in part due to regulations that constrain bank lending and interest rate trends. This growth has paralleled and supported that of the U.S. middle market, with many firms in this segment acting as borrowers of private debt. However, as banks and ever-larger private debt funds focus on lending to larger firms, the LMM has become a comparatively underserved segment. This whitepaper explores these trends, evaluating the historical returns to private debt and considering how private debt funds may achieve strong risk-adjusted returns in the LMM. The findings throughout this whitepaper highlight that a fund manager’s skill can considerably impact their ability to take advantage of this market opportunity, highlighting the crucial role of manager selection for new and incumbent investors alike.