Market Set for Takeoff
The private credit market has seen rapid expansion, with PitchBook estimating its current value at approximately $1.6 trillion, including around $500 billion in dry powder. This represents a nearly fourfold increase since 2013. The US leads with about $1.1 trillion, while Europe holds most of the remaining market share.
Despite this growth, industry leaders like Blackstone view private credit as still in its early stages. Michael Zawadzki, Blackstone Credit and Insurance’s global chief investment officer told Bloomberg Television that the market could reach $25 trillion.[1] This projection reflects the need for financing data centers and the energy transition.
Growth Drivers
Higher base rates, a shift from banks to private lenders, and an increasing array of strategies to access private credit are fueling market growth. Zawadzki highlighted private investment-grade strategies, including asset-backed finance and infrastructure credit, as particularly compelling in the current market. The asset-based finance market alone is estimated to be between $5 trillion and $10 trillion.[2]
Early Stages in Asset-Based Finance
Blackstone's Rob Camacho, co-head of asset-based finance, emphasized that private credit lenders are just beginning to tap into consumer and asset-based finance. Large-scale players needing asset-based debt are likely to prefer working with single managers who can commit to these transactions. Camacho pointed out that private credit’s share of the asset-based finance market is still small, indicating significant growth potential.[3]
Expanding Market Participants
Currently, most borrowers in the private credit market are small- or mid-sized firms with minimal corporate debt. Blackstone finances various sectors, including consumer loans, aircraft loans, fund finance, renewables, and critical infrastructure. Camacho believes that as interest rates remain steady, more assets will become financeable, and larger, investment-grade companies will increasingly turn to asset-based debt.[4]
Positive Outlook from Major Players
Morgan Stanley projects the private credit sector could grow to $2.8 trillion by 2028, citing the advantages of tailored credit solutions.[5] The majority of private credit lending involves floating-rate investments, which adjust with interest rates, offering real-time mitigation against rate changes.
Compelling Performance for Investors
Private credit has historically outperformed other fixed-income segments, offering higher returns and lower volatility than leveraged loans or high-yield bonds, according to Morgan Stanley. Alliance Bernstein notes that the growth in private markets is set to continue, driven by structural factors like ongoing banking regulations and the efficiency and certainty of execution provided by private lenders.[6]
Source: https://www.morganstanley.com/ideas/private-credit-outlook-considerations
see footnote[7]
Conclusion – Fresh Opportunities for Investors
At The Family Office, we are confident in private credit’s expanding role in financing the real economy. This growth presents investors with unique opportunities to diversify asset allocations and enhance portfolio performance.
“Direct Lending” is represented by the Cliffwater Direct Lending Index (CDLI) and is calculated from quarterly data, which has been annualized. “High Yield Bonds” is represented by the ICE BofA High Yield Index calculated from annualized monthly data, except for the loss experience chart, where this is sourced from Moody’s. “Leveraged Loans” is represented by the Morningstar LSTA US Leveraged Loan Index calculated from annualized monthly data, except for the loss experience chart, where this is sourced from Moody’s. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment.