Market Volatility: another factor driving private credit’s expansion

Private credit’s expansion over the past several years has been well-telegraphed, driven by what we believe is a multi-faceted set of growth drivers including: (1) investors’ desire for diversification and income, (2) borrowers’ desire for customization and partnership, (3) structural shifts in public debt and equity markets, and (4) an evolution in the bank lending landscape.

We believe another factor in private credit’s expanding universe of borrowers has been market volatility, which has been especially elevated over the past several months. In our view, such episodic volatility underscores the importance of certainty on financing execution and terms – which private credit seeks to provide to a wide range of firms, even when public debt markets are dislocated.

Private credit amid market volatility

We believe the second half of 2025 will likely be characterized by a somewhat more challenging growth-inflation mix in the U.S., alongside key deadlines and policy shifts related to trade, taxes, and fiscal policy. Episodes of macro volatility – which are inherently difficult to time – will, in our view, likely remain a prominent feature of the investing landscape.

We see scope for a further shift in the structure of the lending landscape as a result of volatility. Specifically, we believe recent periods of episodic market volatility may act as a tailwind in further broadening the addressable market of borrowers accessing private credit for financing solutions – largely due to private credit’s potential to provide certainty of execution and terms, flexibility, and customization across the capital structure.

The duration and severity of market volatility is an important factor, in our view. Even short bouts of volatility tend to reinforce the importance of certainty of execution for financing. And uncertainty and volatility lasting months (as opposed to weeks) would likely make it more difficult for business to ‘wait it out’ – especially if they have time-sensitive funding needs such as near-term capital expenditures, expansion plans, or acquisitions to fund. As a result, firms in this situation may increasingly turn to private credit for financing, even if it may result in paying a premium to achieve the desired speed, flexibility, and clarity around funding options.

One of the key implications that we expect for corporate credit – across liquid and private markets – is an increase in fundamental and performance dispersion. Sector and issuer selection, company-specific characteristics and solid underwriting should gain increased importance in such a dynamic investing environment.

A financing continuum

We view private credit as a viable financing option for a wide range of companies in a variety of market conditions. Rather than operating in distinct silos, we view the ‘financing mix’ between private credit, bank lending, and publicly traded (syndicated) debt markets as increasingly more fluid, ebbing and flowing depending on market conditions.

This fluidity has increased in recent years, as private credit has grown into a sizable, scalable, stand-alone asset class. Data from Preqin shows that experienced private credit managers (i.e., those with four or more vintages) have captured 86% of private credit fundraising since 2022.¹ By contrast, new entrants in private credit have raised only 4% of private credit fundraising over the same period.² In our view, these trends are reflective of the fact that allocators increasingly value scale, workout experience and restructuring expertise amid a higher cost of capital environment.

At the same time, the average private credit fund size has grown from $627 million in 2020 to $1.05 billion in 2024.³ Growing fund sizes have allowed private credit to fund larger transactions, reaching into areas it previously was not servicing. This includes larger borrowers – some of which have demonstrated access to the syndicated debt markets.

Growing fund sizes have enabled private credit to fund larger transactionsPrivate ('jumbo') loans greater than $1 billion, in the USD market

^{Source: KBRA DLD, HPS, BlackRock. As of May 31, 2025 (most recent as of July 1, 2025). Includes incremental amounts to existing financings that total $1 billion or more.}

While this presents a structural tailwind for upper middle market and larger-scale private credit borrowers, we still see a compelling opportunity across the core middle market. Smaller-sized borrowers are increasingly likely, in our view, to rely on private credit for incremental financing that is too small to be considered liquid in the syndicated credit markets (which are serving ever larger borrowers). We also believe these companies can benefit from the partnership-oriented lending relationship and customized financing as they move through the various stages of their growth journey.

Private credit’s share of the broader leveraged finance market – inclusive of high-yield (HY) bonds and leveraged loans – has increased over the last decade plus. Of note, private credit has captured outsized ‘market share’ during periods of dislocation in liquid markets with 2022 being a prime example. We also see scope for private credit to increase its share of the overall ‘lending pie’ in more benign market backdrops.

Private credit’s share of the leveraged finance market has increasedU.S. private credit fundraising as a % of total U.S. leveraged finance issuance

^{Source: HPS, BlackRock, Preqin, Dealogic (ION Analytics), Pitchbook LCD. As of July 11, 2025. USD leveraged finance issuance includes: (1) USD private credit fundraising per Preqin, (2) USD HY bond issuance per Dealogic (ION Analytics), and (3) USD institutional leveraged loan issuance per Pitchbook LCD.}

Our overall expectation is that the private vs. public mix shift will ebb and flow with market conditions, with private credit continuing to steadily gain market share across cycles, as it has done consistently following the Global Financial Crisis.

We believe the key drivers of borrower interest in private credit include the relative certainty of execution and terms, the ability to provide a customized lending solution, generally faster execution, enhanced confidentiality, and a partnership-oriented relationship.