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The case for private credit
- Global private credit assets under management are projected to reach approximately $2.1 trillion, continuing a growth trajectory from under $100 billion in 2010, with expansion driven by shifting allocations from public to private markets, particularly among insurance companies and sub-investment grade borrowers now including investment grade.
- Market participants anticipate testing the asset class in a full-blown recession similar to 2008-2009, expecting increased losses and defaults in direct lending that typically materialize four to five years after the initial lender-private equity discussion.
- Dispersion among managers is forecast to widen significantly during economic downturns due to a lack of established benchmarks, elevating the importance of manager selection for capital allocators while portfolio performance remains insulated until visible signs of weakness appear in the real economy.
- Structural opportunities are expected to emerge in senior direct lending in the US, junior debt, flexible capital, and energy transition sectors, alongside persistent demand for open-ended evergreen vehicles from mass affluent and wealth management investors.
- Specific risks identified include asset-for-debt swaps and restructurings affecting smaller cyclical companies and European buyouts predating 2019, whereas systemic risks to financial stability are anticipated to be overstated given that BDC leverage is legally capped at 2x and most firms operate below 1.5x.
- The outlook for market share relative to bank underwriting remains robust in large-cap buyouts requiring funding certainty, with volatility expected to drive continued pivots toward balanced portfolios that treat private credit as a defensive asset providing cash flow and inflation hedging.
- These projections are based on observations and discussions recorded on April 14, 2025, reflecting trends over the past 15 years and the last decade of significant growth in the sector.