Industry Report - Private Credit

Introduction

In 2025, the private credit industry continues its robust expansion, emerging as a pivotal component of the global financial landscape. With assets under management (AUM) reaching approximately $1.5 trillion at the start of the year and projections indicating a rise to $2.6 trillion by 2029, private credit is solidifying its role as a mainstream financing alternative [1]. This growth is driven by a confluence of factors, including tighter bank lending practices, investor demand for higher yields, and the flexibility private credit offers to borrowers.

Market outlook

With increasing uncertainty and volatility in the markets, banks struggle with stringent regulatory requirements and capital constraints, private credit funds are on the rise as they are able to provide tailored financing solutions. This shift is highlighted by new private credit funds closing at significant sizes, with 13 funds closing at or above $10 billion over the past decade [2].

The appeal of private credit to investors is further amplified by the growth in institutional demand. Due to pension funds, endowments, and sovereign wealth funds being relatively higher-yield assets as compared to traditional asset classes, there is a swell in capital flowing into private credit markets. The absence of the market volatility in public debt markets positions private credit as an attractive solution in an era of market uncertainty. 

Growth opportunities

Private credit is increasingly stepping into the spotlight as private equity faces mounting headwinds, including high leverage, ageing portfolios, and a slowdown in exits via IPOs and M&A. Many traditional buyout PE firms are burdened by significant debt, and investors are growing cautious, while large institutional LPs such as pension and endowment funds face liquidity pressures [3]. In contrast, private credit offers a more flexible and yield-generating alternative, often backed by ready capital from insurers and other investors seeking to escape the low returns of traditional fixed income. Secondary funds and credit investors with ample dry powder are thus increasingly seen as key liquidity providers, positioning private credit as a new growth engine in private markets.

Focusing on APAC, financial institutions are also recognising the potential of private credit, leading to increasing collaborations. For instance, HSBC is exploring partnerships with private credit firms to integrate private lending into its asset management and insurance operators, particularly in Asia [4].

Investors, including family offices and institutional entities, are increasingly allocating capital to private credit. The appeal lies in the asset class’s potential for higher yields, portfolio diversification, and the ability to engage in bespoke lending arrangements. Notably, family offices are shifting funds from private equity to private credit, attracted by yields ranging from 8% to 20% and the flexibility to invest in niche sectors

Challenges and risks

Despite its growth, the private credit sector faces challenges. Market volatility, influenced by geopolitical tensions and economic policies, has led to increased activity in the secondary market as investors seek liquidity. For example, Pantheon raised $5.2 billion to acquire private credit stakes, indicating a trend toward secondary sales amidst market uncertainty [5]. Additionally, the recent tariff announcements have caused significant stock declines for private asset managers, with firms like Apollo Global Management and Blue Owl Capital experiencing drops of over 20%.

Regulatory scrutiny is also intensifying as the private credit market grows. The Bank of England has warned financial institutions against using significant risk transfers to work around capital requirements. This is amidst fear of Bank runs due to solvency issues, which have happened historically during uncertain market conditions. Thus, the relatively new and unregulated Private Credit market is garnering increasing attention from Central Banks and policy makers as they aim to write policies which would ensure investor protection and market stability [6].

Conclusion

In conclusion, the private credit industry is poised for continual growth in 2025 and beyond. Due to regulatory constraints faced by traditional lenders, higher yields, and the increasing sophistication of private credit strategies, this asset class is becoming an increasingly integral part of the global financial ecosystem. 

Sources:

1.  Morgan Stanley. (2024, December 18). Private credit outlook 2025: Opportunity & growth. Morgan Stanley Investment Management. https://www.morganstanley.com/im/en-gb/intermediary-investor/insights/articles/private-credit-outlook-2025-opportunity-growth.html

2. Paul, Weiss, Rifkind, Wharton & Garrison LLP. (2025). 2025 Private Credit Market Outlook (Part 1). https://www.paulweiss.com/media/3986008/part-i_private_credit_market_trends_from_originations_to_bank_partnerships_and_insurance.pdf 

3.  Palladino, C. (2025, April 10). Private equity is more stuck than ever — and secondaries will benefit. Financial Times. https://www.ft.com/content/35b0c461-cf6d-49f0-a541-b798415c0c5b

4. White, L., Cruise, S., & Spezzati, S. (2025, April 11). Exclusive: HSBC explores private credit push, sources say. Reuters. https://www.reuters.com/business/finance/hsbc-explores-private-credit-push-sources-say-2025-04-11/

5.  Krause, M. (2025, April 10). Private credit secondary sales set to rise as market turmoil spurs hunt for cash. Reuters. https://www.reuters.com/markets/private-credit-secondary-sales-set-rise-market-turmoil-spurs-hunt-cash-2025-04-10/