Private Credit: A primer on a broadening asset class

Key takeaways

• Over time, private credit has evolved from a niche source of financing into a sizable, scalable, stand-alone asset class. For industry participants, understanding private credit is no longer optional, as its scale, scope, and influence increasingly shape broader financing market dynamics. This Private Credit Primer provides a four-part framework for understanding private credit today:

1. Defining private credit: While private credit’s definition has historically focused on middle market corporate lending, today it encompasses a broader set of opportunities. As such, we now define private credit as credit that is originated, structured, and held by lenders.
2. Unpacking private credit’s growth drivers: Private credit’s expansion has been supported by four structural growth drivers, each detailed within: (1) an expanding addressable market of borrowers, and borrower preferences, (2) investor desire for portfolio diversification and increased comfort with private credit, (3) structural shifts in the public debt and equity markets, and (4) shifts in the bank lending ecosystem. Together, these dynamics underpin our expectation for global private credit AUM to reach $4.5 trillion by year-end 2030.
3. Performance update: Private credit performance has remained resilient in aggregate, delivering attractive interest income relative to realized losses. Further, it has historically offered a yield pick-up versus public markets, and comparable realized losses.
4. Fundamentals update: Underlying fundamentals remain constructive, in aggregate, with continued borrower growth, improving coverage metrics, and contained default rates. That said, dispersion remains evident across characteristics such as manager experience, fund vintage, borrower size, and borrower sector. This, in our view, reinforces the importance of underwriting discipline, active credit selection, and portfolio construction as the asset class matures.