“There is no passive option in direct lending.”

So begins “Selecting Direct Lending Managers,” Chapter 13 in Steve Nesbitt’s Private Debt: Opportunities in Corporate Direct Lending. This asset class is indeed available only through active management.

As we’ve discussed in this series, the Cliffwater Direct Lending Index (CDLI) is an excellent proxy for middle market loans. It derives from 6000 loans in BDCs accumulated in the 2005-2017 timeframe, so is a reasonably public benchmark.

But it is not an index through which loans can be accessed by investors. That can only happen, at this point in the development of the asset class, by investing directly with private debt managers. Hence the importance of picking the right one.

But how to pick?