August 24, 2025

Private credit (also called private debt or direct lending) refers to loans made by non‐bank institutions – such as private equity firms, business development companies (BDCs), or alternative asset managers – directly to companies. Unlike public bonds or syndicated bank loans, these loans are negotiated privately and usually held to maturity by the lender. The asset class has exploded in size over the past decade: global private credit assets under management (AUM) have grown from a few hundred billion in the early 2010s to over $1.6 trillion by 2023 (sources – ubs.com). In the U.S. alone, private credit volumes swelled from just $46 billion in 2000 to roughly $1 trillion by 2023. This growth reflects both strong investor demand for higher-yielding, alternative income and borrowers’ appetite for flexible financing when traditional bank loans are constrained. Key features of private credit: loans are typically floating-rate (indexed to benchmarks like SOFR), structured with rich covenants, and aimed at mid-sized or leveraged companies. Investors commit long-term capital, so private credit funds don’t rely on retail deposits – this makes private credit more “illiquid” and justifies higher interest rates. For example, private loans often carry spreads of 200–400 basis points above public rates to compensate for illiquidity. These deals tend to be covenant-heavy (to protect lenders), in contrast to looser “covenant-lite” public loans. In practice, a typical private loan might be $10–250 million for 3–7 years, although sizes have risen: recent data show the average private credit loan exceeded $80 million by 2022 – much larger than loans made by local banks. Why Private Credit Is Growing Private credit’s rise is driven by several factors. After the 2008 financial crisis, banks faced tighter regulation and capital rules. At the same time, bond yields plunged to record lows. Institutional investors (pension funds, endowments, insurance companies, family offices) seeking higher income turned to alternative debt. “With interest rates near zero, returns on government and corporate bonds were unattractive,” notes Brookings: this “reach for yield” pushed capital into private credit funds. In the U.S. alone, 28% of private credit fund capital comes from pension funds, 21% from endowments, and 19% from wealthy families. Businesses also find private credit appealing. Compared to banks, private lenders often execute deals faster and customize terms. Borrowers benefit from upfront pricing, tailored covenants, and flexible amortization schedules. As Brookings observes, private funds advertise “their ability to provide loans to businesses quickly, on flexible terms, and with pricing available to borrowers upfront”. This is especially valuable for companies that are too small, unrated, or niche for public debt markets. These drivers have combined to make private credit one of the fastest-growing corners of finance. As PwC reports, “the rise of the private credit ecosystem is causing a fundamental realignment in the debt value chain in capital markets”. How Private Credit Works (vs. Traditional Loans) Private credit is fundamentally non-bank lending. A firm (often backed by a private equity sponsor or seeking an acquisition) negotiates a loan directly with a private lender. Unlike a bank, the lender usually commits its own or investor capital and holds the loan on its balance sheet. There is no public issuance or broad syndication; indeed, private loans typically do not trade in liquid markets. Key differences from traditional bank loans: Each private credit deal is negotiated case-by-case. Lenders may combine senior debt, subordinated debt, or even mezzanine tranches in one package. They price the loan to include a substantial illiquidity premium – for example, spreads up to 400 basis points above bank benchmarks have been common. In exchange, borrowers get quick execution and often more flexible amortization or extension features than bank debt. Figure: The private credit market has grown rapidly. Global private debt AUM has more than quadrupled since 2015, reaching roughly $1.6–1.8 trillion by 2024. Charts like this (from UBS Asset Management) illustrate the surge. Benefits of Private Credit Private credit offers advantages for both borrowers and investors: Risks and Concerns While the private credit market has grown rapidly, it is not without risks: Regulatory watchers are paying attention. For example, the U.K. Bank of England recently highlighted that private credit had quadrupled since 2015 (to an estimated $1.8T by 2024) and noted much of that came in a low-rate era. Policymakers ask whether, in a downturn, private credit could amplify shocks. As the PwC report warns, the sector’s much larger scale today means “if defaults rise… there could be a systemic feedback loop” to the broader economy. Private Credit Around the World Private credit is a global market, though with regional differences. The U.S. remains the largest by far – roughly 40% of global private credit funds focus on U.S. companies. Europe is the second-biggest market, driven by pension capital and an active mid-market. Asian private credit is still nascent but growing: JPMorgan recently noted APAC private credit deals total roughly $200 billion annually (versus a $1.5T public debt market), implying big room to expand(sources- reuters.com). Figure: Deal size distribution in private credit. Larger and mid-size transactions now make up a significant portion of direct lending. UBS data (2024) show that the private credit market is accommodating increasingly big loans. This reflects the trend that “private credit loans have become larger” and more similar to big syndicated loans. Case Studies and Examples Practical examples illustrate private credit’s role: Big industry consolidations also underscore private credit’s momentum. In late 2024 BlackRock agreed to acquire HPS Investment Partners for $12 billion(sources– alternativecreditinvestor.com) (giving BlackRock a top-tier credit business). Similarly, Ares Management bought GLP Capital Partners for $3.7 billion (adding $44 billion AUM)(sources – alternativecreditinvestor.com). Firms like Blue Owl, Stonepeak, and others have snapped up credit managers worldwide. These moves highlight how financial institutions are investing heavily to build out private lending platforms, anticipating continued demand. Future Outlook All signs point to further growth. BlackRock projects private credit will exceed $3.5 trillion by 2028, potentially surpassing today’s combined leveraged loan and high-yield bond markets. The “addressable market” is enormous – some analyses even cite figures like $30 trillion when counting non-investment grade borrowing globally. Key factors for the coming years include: In summary, private credit is much more than a niche today. It has become a mainstream source of capital for companies worldwide. Borrowers appreciate its speed and flexibility, while investors value its yields.