Factors Driving the Boom in Private Credit

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Introduction

  • The boom in private credit has become a major talking point amongst investors in the last few years given its rapid growth in global assets-under-management (AUM) from $830 billion at the beginning of 2020 to over $1.7 trillion as of June 2023.
  • The main drivers behind the recent surge in AUM are the increase in demand for funding from businesses impacted by COVID-19, alternative lenders filling the financing gap left by banks, and the relative attractiveness of private debt investments in the current macroeconomic environment.
  • This is also fuelled by the acceleration of a long-term trend driven by several structural factors including the disintermediation of lending away from banks, the attractive historical risk-return characteristics of private credit, and the growing scale and importance of alternatives in financial markets.
  • The outlook for private credit remains strong, as these drivers show no signs of diminishing in the near-term. In addition, market participants anticipate more issuances due to robust fundraising needs in 2024, despite apprehension over deteriorating average borrower financials. These concerns will be further explored in a forthcoming ARC Market Commentary report on the credit quality of private loans outstanding in the market.

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Factors Driving the Boom in Private Credit

24 Jun 2024

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