With base rates having moved significantly from the near-zero environment of the 2010s, investors face a recalibrated landscape for income generation. Traditional fixed income markets now offer a real yield, but for sophisticated investors seeking returns in the 8–12% range, the case for direct lending and secured private credit has never been clearer.
The Yield Gap Has Narrowed — But Not Closed
UK gilts yield approximately 4–4.5% as of late 2024. Investment-grade corporate bonds might add 100–150 basis points above that. For an investor targeting 10% per annum, the gap to be closed through alternative strategies has narrowed from 900 basis points to approximately 500 — still substantial, and still attainable through well-structured private market exposure.
Asset-Backed Lending: The Middle Ground
Direct lending secured against income-producing commercial assets occupies an attractive middle ground in the risk-return spectrum. Unlike equity, the investor does not share directly in operational upside — but neither does the investor bear first-loss exposure to operational variability. The security package — typically first or second charge over real property and/or operating business assets — provides a defined floor to recoverable value in stress scenarios.
The R2 Approach
R2 targets assets in sectors characterised by non-discretionary demand, strong regulatory environments, and management teams with track records of operational delivery. Our current portfolio generates combined EBITDA of approximately £850,000 across two operating businesses, providing meaningful income coverage against investor returns.
The 12-month secured term is designed to provide liquidity alignment with our investment timeline — long enough to allow operational improvements to compound, short enough to maintain investor access to capital in a predictable timeframe.
