Can private credit maintain momentum?

Once a relatively niche corner of the financial landscape, the private credit market blossomed into a dynamic and vital hub of activity in recent years. Attracting diverse investors and new players, it morphed into a diverse ecosystem serving new borrowers in a dazzling array of sectors. Favourable regulation and a ‘Goldilocks economy’ propelled private credit forward to this point. Will it be able to sustain its momentum, or will growth be undermined by competition? 

Our view is that these amount to light crosswinds, buffeting the industry but not hindering overall progress. Having established itself as an attractive alternative to both investors and borrowers, private credit will keep growing, albeit at a slower pace. Challenges remain. Facing a riskier environment, investors are demanding more transparency and flexibility from their managers. Customisation makes scaling operations difficult for managers. Competition may ultimately pressure spreads and margins. Complacency could spell trouble, and forward-thinking lenders are treating these challenges as opportunities to adapt.