Fund shutdown announced for $4.2 billion endeavor focused on middle market borrowing, led by PGIM.
PGIM Announces New Global CLO Fund for Direct Lending
PGIM, a leading global investment management firm, has announced the launch of a new global Collateralised Loan Obligation (CLO) fund, focusing on directly originated senior loans across various industries and borrower types. The fund aims to provide diversification and deployment targets for investors, as much of the growth in direct lending has been in sponsor-backed deals.
The new fund, part of PGIM's second commingled private credit fund open to unaffiliated investors, will target senior secured financing for middle market companies across North America, Europe, and Australia. This strategy is similar to that of PGIM Senior Loan Opportunities II, L.P. (PSLO II), a middle market direct lending vehicle that has secured over $4.2 billion in capital commitments.
PGIM's strategy in capturing both sponsored and non-sponsored middle market channels in direct lending centers on diversifying risk and capital deployment through broad market coverage. The firm targets a large addressable market, as over 90% of middle market companies are non-sponsored (not owned by private equity).
The rationale behind this approach includes market size and diversification, attractive risk-adjusted returns through senior secured loans, origination capability as a competitive advantage, focus on non-sponsored companies offering stability, and investor validation.
In the U.S. alone, around 200,000 middle market companies exist, but only about 10,000 are private equity owned. Thus, focusing solely on sponsor-backed deals limits scale and diversification. PGIM's ability to originate deals directly at scale, especially bilaterally, creates proprietary deal flow and underwriting advantages, which is critical in a market with information asymmetry. This allows disciplined execution with selectivity and advantage in pricing and risk assessment.
Non-sponsored or family-owned firms tend to emphasize sustainability and have predictable cash flows, providing natural hedges against volatility and historically lower default rates than industry benchmarks. Investors, including insurance companies, pension funds, and sovereign wealth funds, support this differentiated approach, recognizing the value of capturing the overlooked non-sponsored market alongside sponsored.
Matt Harvey, head of middle market direct lending at PGIM Private Capital, stated that the current channel is no longer sufficient to achieve appropriate diversification and deployment targets for investors. The fund's origination capability is considered the cornerstone of success in private credit, providing an advantage through direct bilateral origination at scale across the middle market.
This direct origination approach creates proprietary deal flow and underwriting advantages in a market characterized by information asymmetry. PGIM's strategy of blending both sponsored deals (growth-driven, private equity-owned) and non-sponsored businesses (more stable, family-owned or private firms) aims to maximize portfolio diversification, leverage proprietary origination scale, manage information asymmetry, and deliver attractive, stable returns to investors. This dual-channel approach addresses market breadth and investor needs better than focusing exclusively on the sponsor-backed segment.
- PGIM's new global CLO fund, focused on direct lending, is designed to offer diversification and deployment targets for investors in asset management, using finance strategies in private markets by investing in senior loans across various industries and borrower types.
- The fund's direct origination approach, a key part of PGIM's strategy in capturing both sponsored and non-sponsored middle market channels, provides an advantage through proprietary deal flow and underwriting advantages, aiming to deliver attractive, stable returns to investors in business through private credit.
