Explosive Growth Continues
The private credit market reached unprecedented scale in 2024, with assets under management surpassing $1.7 trillion globally, representing nearly 20% growth over the previous year. This reflects a fundamental shift in how companies access financing and how institutional investors allocate capital.
Why Private Credit is Booming
- Bank Retrenchment: Banks now provide less than 30% of leveraged buyout financing, down from 60% before 2010
- Attractive Returns: Net returns of 8-12% annually with lower volatility than public high-yield bonds
- Inflation Protection: Most loans have floating rates tied to SOFR, protecting real returns as rates rise
- Middle Market Focus: Loans of $25M-$500M to companies lacking access to public bond markets
Key Segments
- Direct Lending: $900B in AUM, providing senior secured unitranche loans with 10-13% yields
- Specialty Finance: $400B including asset-based lending, equipment financing, and real estate credit
- Distressed Credit: Opportunistic funds targeting refinancing challenges, though default rates remain low
- Structured Credit: CLOs packaging private credit loans, with $150B+ in new issuance in 2024
Investor Base
The investor base has broadened significantly:
- Insurance Companies: Largest institutional investors, attracted by predictable cash flows
- Pension Funds: Allocating 5-10% of portfolios for income generation
- Sovereign Wealth Funds: Large allocations from Middle Eastern and Asian funds
- Family Offices: Improved access through interval funds and lower minimums
Risk Considerations
- Illiquidity: 5-7 year lock-ups with no secondary market liquidity
- Valuation Opacity: Marks rely on manager estimates and can lag in deteriorating situations
- Concentration: Funds typically hold 50-150 loans, requiring careful underwriting
- Covenant-Lite Risk: Some lenders have relaxed protections in competitive environments
Outlook
Industry forecasts project private credit assets reaching $2.5-3 trillion by 2028, driven by continued bank regulations, demographic demand for income, private equity's financing needs, and geographic expansion into Europe and Asia.
Sources: Preqin Global Private Debt Report 2024, PitchBook, Bloomberg Intelligence