Foreword
Over the past decade, Financing the Economy has become a cornerstone for data and insights, guiding investors, managers and policymakers worldwide. The private credit market has transformed radically in this period, yet its core tenets remain steadfast. One enduring truth is that private credit represents a structural revolution in global credit and capital markets. In 2014, we anticipated that asset managers as direct lenders represented a permanent shift, not a passing trend. Today, with private credit emerging as a US$3tn* asset class—a robust vertical for both corporate and asset-backed financing—the industry has achieved a remarkable milestone that deserves celebration.
A consistent theme throughout this journey is the power of flexible, tailored capital delivered with speed and certainty. Private credit managers continue to support diverse borrowers, from high-growth innovators to companies expanding into new markets or those requiring liquidity. Regardless of economic shifts, private credit has proven to be a resilient and trusted source of financing. This trust will be a formidable asset in the years to come.
Equally noteworthy is private credit’s capacity to deliver steady returns to investors. Expanding from US$440bn to over US$3tn amid a global pandemic, geopolitical unrest, high inflation and economic uncertainty is a feat few other asset classes or investment strategies can claim. Investors have not only fuelled this growth but also actively shaped market standards, influencing transparency, product design and governance practices across the sector.
Finally, private credit’s rapid rise has implications for regulatory frameworks. Policymakers recognise the sector’s potential to enhance economic resilience, but also consider the financial stability risks that accompany such remarkable growth. Given their mandate, these concerns are valid, as regulators often lack the direct access to data enjoyed by private credit investors. The ACC takes pride in our role bridging this gap, facilitating open dialogue between the industry and regulators to foster understanding. We extend our gratitude to the members and individuals who have supported our efforts to engage constructively with policymakers.
This year’s Financing the Economy report is our most extensive and insightful look at the private credit market to date. We hope the data and perspectives within offer valuable guidance on the sector’s current landscape and its potential over the next decade.
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* The methodology behind this figure can be found on page 8 of the report.
Executive Summary
Significant but stable growth
- We estimate that the total private credit market is now likely to be more US$3tn worldwide.
- In the past year alone, respondents to our research survey deployed an estimated US$333.4bn of new capital, a significant rise from the US$203bn invested in 2022.
- The rise in deployment volumes has been driven primarily by larger firms, with 20% of the largest private credit managers accounting for nearly 80% of the overall volume of capital.
- This achievement underscores the sector’s expanding role in global finance and its continued resilience, despite the regular shocks and persistent economic uncertainty that has affected the market during the past 5 years.
- Corporate lending, including middle market CLOs remains the core of the asset class, representing 58% of our respondent’s private credit assets under management.
- The private credit market continues to consolidate through mergers and acquisitions within the asset management sector, as well as through the formalisation of partnerships with banks.
Resilience across multiple measures
- Recent periods of high interest rates, inflation and the long-term impact of the pandemic continue to affect private credit portfolio companies. This stress is being reflected in valuations, but adjustments remain modest and consistent with the broader economic environment.
- There has been a rise in significant loan term adjustments, with the average reported by our respondents increasing from 8.07% in 2023 to 11.65% in 2024.
- 74% of respondents report growing or rapidly growing EBITDA in their portfolio companies, while around 24% report broadly stable EBITDA. 63% state that their most common LTVs are below 50%.
- Comparing and contrasting ACC data with other industry sources indicates that this market stress is within forecast scenarios, and not at a level which would significantly harm returns to investors or pose risks to financial stability.
Expanding the frontiers of private credit
- A majority of private credit managers expect to grow their business across both established and developing private credit strategies and markets.
- ABL, real estate debt and infrastructure debt are now a substantial part of the market, collectively accounting for 40% of private credit AuM.
- Europe and the APAC region are expected to grow significantly, with further bank retrenchment, increased familiarity amongst borrowers and greater regulatory certainty combining to make these markets more attractive to lenders.
- Demand amongst investors for private credit assets that can provide them with diversification and alternative sources of returns remains strong.
- Government policy objectives to secure addition investment into public energy and infrastructure projects are likely be a significant source of opportunity for private credit funds.
Risk management remains a top priority
- The majority of loan agreements in respondents’ portfolios retain two financial covenants. The share of cov-lite loans in the private credit market remains significantly lower than in the BSL market, with cov-lite loans also more likely to be found in private credit loans to larger corporates.
- Leverage levels in private credit funds remain modest, with 51% of survey respondents using investment leverage between 0.1x and 1.5x of equity, while 31% report that they are unlevered.
- ACC data shows that these leverage levels are consistent with those reported over the past decade, despite the tremendous growth in size of the industry over that period.
- Banks are the most common providers of finance to private credit funds but there has been some growth in insurance companies, other asset managers and the bond market as alternative providers of finance.
- ACC data shows that refinancing maturities are staggered for the next few years and that refinancing opportunities remain a key source of future capital deployment for lenders.
Private credit is a core and growing part of investor portfolios
- LPs continue to be more sophisticated in how they gain exposure to the asset class and their expectations with respect to product design and risk management practices.
- Transparency remains a key differentiator for investors when assessing managers. 74% of managers report on their portfolios on a quarterly basis, with 24% doing so on a monthly basis. 90% of respondents report valuing their loans either quarterly or more frequently, and the majority of respondents report using external valuation expertise on a regular basis.
- Fundraising has begun to stabilise and improve in 2024 after the relative slowdown of the past few years. Industry data suggests that many investors remain under-allocated to private credit and that concerns regarding the performance of private credit are receding.
- Retail clients are a growing source of capital for private credit funds, but progress is slow outside the US. Regulatory certainty over new investment vehicles in Europe should accelerate interest in the asset class by retail investors.
- Investors continue to evaluate how the growth and consolidation of the market might impact incentives to managers and their overall performance.
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For more information about the report please contact Nick Smith, Managing Director, Private Credit.