In the evolving landscape of private credit, one question looms large for advisors and allocators: Where should we play? While large-cap and upper middle market lending has historically attracted the lion’s share of capital among public non-traded BDCs—akin to investors’ early exposure to large-cap equities—there’s a growing realization that the core middle market may offer greater long-term value, diversification, and downside protection.
A Familiar Evolution: From Large Cap to Middle Market
Much like equity investors who began with large-cap stocks before expanding into mid- and small-cap companies, private credit allocators in the wealth segment are reassessing the “default” strategy of sticking with upper-middle-market deals. In recent years, flows into BDCs have been dominated by brand-name managers whose average portfolio companies often exceed $200 million in EBITDA.
These are quality firms managing quality assets, but as private credit managers have scaled up market, the upper middle market has become increasingly crowded and club-like. Investors seeking diversification may be surprised to find significant overlap in portfolio exposures across their chosen large-cap BDCs.
Why Core Middle Market?
Diversification, Economics, and Documentation
Antares defines the core middle market as companies with EBITDA between $25 million and $125 million. We believe this slice of the market offers several clear advantages:
01
Diversification
The overlap risk that plagues upper middle market strategies is significantly lower in the core middle market. With a broader and less saturated universe of borrowers, core middle market managers can provide investors with exposure to differentiated credits—an essential component for portfolio construction and risk mitigation.
02
Better Economics
In upper-middle-market deals, private credit lenders often compete directly with broadly syndicated loan (BSL) markets. That competition compresses spreads and limits lenders’ ability to push for premium terms. In contrast, core middle market deals are typically non-syndicated, allowing for better pricing and more attractive yields— often with a 150–200 basis point premium over comparable BSL alternatives.
03
Stronger Documentation
When capital markets are wide open, larger borrowers can drive more borrower-friendly terms. In the core middle market, the lack of BSL competition gives lenders greater negotiating leverage. The result? Better covenants, tighter structures, and more lender control—all critical components for downside protection in a volatile market environment.
Timing Matters, but Discipline Wins
There are moments—such as during the COVID-19 market shock or the initial Fed rate hikes in 2022— when upper middle market private credit briefly offered compelling spreads. But these dislocations are often short-lived. We believe core middle market strategies, in contrast, tend to offer more consistent value over time, particularly when paired with experienced managers who know how to navigate this terrain.
Antares has long focused on this segment, not only because of its relative value, but also due to deep, long-standing relationships with sponsors operating in this space. These relationships create a sourcing advantage, enabling access to high-quality, proprietary deal flow.
The Bottom Line
The private credit market is maturing—and so is investor strategy. As financial advisors and institutional allocators refine their theses, the core middle market stands out as a compelling area to play. It offers diversification, economics, and documentation advantages needed to build resilient portfolios and deliver superior risk-adjusted returns.
In a world where everyone is chasing the same few deals, the smart money is starting to look elsewhere. And increasingly, that means looking toward the core middle market.
The content shared here is for informational purposes only. The content herein should not be deemed to be a solicitation or recommendation to invest. The statements and expressions of opinion contained herein are subject to change without notice.