The rise of private credit marks a fundamental shift in how borrowers access funding. It has grown from being a tiny part of the financial system in 2000, with assets under management of just USD40 billion, to become a substantial USD1.7 trillion market¹.
In that time, private credit has evolved from a sponsor-driven category of lending to a diversified asset class that includes everything from direct lending and asset-backed financing to fund financing and specialty finance.
“Private credit is one of the most exciting areas of finance today; and it is a market that complements its public counterpart, in an environment where there is strong demand for financing,” said Oliver Kadhim, Head of Institutional Client Group, Asia, HSBC.
There is likely more growth to come, with forecasts that private credit could more than double in size to USD4.5 trillion by 20302. This would still be much smaller than the total global fixed income market, which was USD140.7 trillion in size in 20233, but if the growth continues, private credit will become an increasingly mainstream source of funding.
Further growth in private credit will be supported by a variety of structural factors, in combination with growing demand from a number of sectors.
There was an initial acceleration for private credit after the 2008 financial crisis, when banks became more regulated and moved towards more liquid and rated credit products, and this provided an opportunity for alternatives managers.
But more recently, the uptake of private credit further accelerated over the past few years due to the normalisation of interest rates, as well as the abundance of capital globally that is looking for a return.
Banks still have a role to play in private credit. Instead of directly extending their balance sheet to borrowers, they provide leverage to private credit funds and source deals by connecting borrowers with lenders.
It is also worth noting that corporates are taking longer to go public, making private credit an attractive source of capital. To put this in perspective: in 2014 the median age for a company to go public was 6.9 years. By 2024, the time spent private had grown to 10.7 years4.
On the demand side, there are several sectors that will have huge demands for funding in the coming years. These include new forms of digital infrastructure, like data centres; as well as renewable energy sources, like wind and solar.
