Private credit - primed for growth as LBOs revive, ABF opportunities accelerate

Executive Summary

The size and scope of the global private credit markets will continue to grow rapidly in 2025, spurred by lower interest rates, declining default risk and solid economic strength, led by the US and Europe. Global private credit assets under management (AUM) will jump to $3 trillion by 2028, reflecting greater momentum than in the past two years.

» Asset managers look further afield for growth and returns. Competition has hurt lofty returns in direct lending, prompting alternative asset managers to seek newer growth opportunities such as the asset-based finance (ABF) market and investment grade private credit as insurance companies search for higher yields.

» ABF growth will be fueled by bank partnerships. While direct lending makes up the biggest share of alternative asset management's private credit activity, ABF has gained importance as banks step away from riskier credit exposure. This is especially so in instances where they can alleviate risk-based capital requirements. We expect this momentum to continue.

» Focus on retail investor opportunities will intensify. Retail private debt AUM has been accelerating and, while still less than 20% of total private debt AUM, is growing more quickly than institutional AUM. To access this newer base, managers are coming to market with evergreen funds while some are rolling out first-ever private credit Exchange Traded Funds (ETFs).

» Insurance companies will deepen ties with private credit. Synergies between insurance companies and alternative managers will grow, but it will be essential to monitor risks, especially credit and asset-liability mismatch (ALM) risks.

» US regulatory approach will likely change under new administration. The US regulatory approach toward the US private credit market will likely change during the second Trump administration, as priorities shift from an emphasis on enhanced disclosure requirements to reassessing the existing regulatory framework with a focus on capital formation.

» Policy uncertainties, opacity risk will persist. A negative turn in the economic environment would likely test the resilience of the private credit market and its growth aspirations. Early identification of asset performance issues remains difficult given limitations on public reporting requirements.