Business lender Epsilon Direct Lending is building on the success of its initial loan fund, with the launch of a new fund targeting senior secured loans for middle market companies. Epsilon is one of the growing number of lenders funded through managed investment schemes. Its first fund, the Epsilon Direct Lending Fund, was launched two years ago and now has around A$150 million in funds supporting eight loans to Australian and New Zealand middle market corporates. Epsilon founding partner Joe Millward said the fund had exceeded its target return of the bank bill swap rate plus 600 basis points.  Millward said the new fund, the Epsilon Direct Lending Senior Loan Fund, would invest alongside the firm’s other investment vehicle. “For this fund, investor appetite will be met via a portfolio of directly structured and documented senior secured floating-rate loans to high-quality, creditworthy middle market companies.” He said the focus would be on companies that are performing well and in non-cyclical industries. Epsilon is attracted to companies in education, healthcare, consumer staples and IT services. “We look for companies that have a clear use for the funds. That might be growth through acquisition, geographic or product expansion, or a change in ownership. Loans are fully secured and we look for sustainable cash flow. “As a direct lender, we get monthly P&L statements and cash flow information from the borrower. If we see any problems emerging, we are highly proactive.” The minimum investment in an Epsilon fund is $250,000 and investors include family offices, charitable foundations, life insurers, a local private bank and a couple of international private wealth groups. Millward said the segment of the non-bank lending market funded via managed investment schemes is growing because capital is coming in from investors who are looking for assets with consistent cash yields, low volatility, good capital preservation and low correlation with equities and traditional fixed income assets. Before founding Epsilon, Millward was an executive manager in Commonwealth Bank’s corporate banking business. He has also had senior roles at Bank of America Merrill Lynch and Royal Bank of Scotland. His co-founders are Mick Wright-Smith and Paul Nagy, both also ex-CBA. Millward said the difference between working in business lending at a big bank and a small, specialist lender is that Epsilon is more efficient when dealing with applications for something like acquisition finance, which is bespoke and time consuming. “Banks are OK at doing that work but they are really set up to offer standard products and terms. They don’t have the resources to do the sort of work we do.  “That is our competitive advantage and we are able to charge a little more interest than banks because we offer a better service.” He said Epsilon was seeing around $1 billion of inquiries each quarter. The volume of inquiries had increased over the past six months but the quality was down a little. “What we are seeing more of now is companies looking for finance to solve a problem. That business is not for us. “What we see from the big banks is that they are continuing to support