Private Markets

Private Debt: a primer - Unpacking the growth drivers

November 2023 | Amanda Lynam

Executive summary

As we recently outlined in collaboration with our colleagues in the BlackRock Investment Institute, (please see Mega forces - Future of Finance), tectonic shifts are underway in the U.S. financial sector, which are changing the markets for deposits and credit. A key beneficiary of this structural shift, in our view, is the private debt market.

The term private debt refers to lending (largely to corporations and small businesses) done outside of the traditional channels of bank lending and the public (syndicated) debt markets. The broad term of “private debt” encapsulates a wide range of strategies such as direct lending – which is the largest by assets under management (AUM) – as well as distressed, opportunistic, mezzanine and venture (among others).

At $1.6 trillion in AUM globally, private debt (excluding real estate) has already cemented its status as a sizable and scalable asset class for a wide range of long-term investors (Exhibit 1). That said, it still represents a modest 12% of the broader alternative asset universe, which totaled $13 trillion as of March 2023, per Preqin (Exhibit 2).

We see scope for the global private debt market to reach $3.5 trillion in AUM by year-end 2028 (again, Exhibit 1). The drivers of this growth expectation are multi-faceted and include:

  1. borrower preferences for customized funding solutions, certainty of execution, and the flexibility inherent in a long-term borrower/lender relationship
  2. investor desires for diversification in the context of a whole portfolio allocation, with opportunities to introduce structural protections (depending on the strategy)
  3. structural shifts in the public markets, which are now serving larger borrowers, leaving public debt market deal sizes prohibitively large for most middle market companies, and
  4. a continued contraction in bank credit availability, which we expect should allow for a further expansion of private debt’s “addressable market” of borrowers

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Amanda Lynam, CPA
Head of Macro Credit Research, Portfolio Management Group – Private Debt
Amanda Lynam, CPA, is Head of Macro Credit Research within the Portfolio Management Group - Private Debt. In this capacity, Amanda leads original market research across a range of asset classes, including global corporate debt markets as well as private debt, real estate and infrastructure lending.

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