Move over Wall Street banks, because a seismic shift is underway as private credit, now a $1.7 trillion global force, is fundamentally rewriting the rules of corporate finance.
Key Takeaways
- Global private credit assets under management (AUM) grew to $1.7 trillion by the end of 2023, marking a 15% year-over-year increase
- Direct lending, the largest segment of private credit, accounted for 58% of total AUM at $989 billion in 2023
- The US private credit market expanded to $1.2 trillion AUM in 2023, representing 70% of global totals
- Private credit fundraising totaled $182 billion in 2023, surpassing private equity for the first time
- Number of private credit funds closed in 2023 reached 650, up 12% from 2022, with average fund size of $280 million
- Institutional investors committed $120 billion to private credit in 2023, representing 66% of total capital raised
- Private credit funds delivered net IRR of 12.5% for vintages 2018-2023, outperforming public high-yield bonds by 400bps
- Direct lending funds averaged 11.8% net returns through Q1 2024, with top quartile at 15.2%
- Private credit default rates remained low at 1.2% in 2023, compared to 4.5% for syndicated loans
- Pension funds represent 35% of private credit LP commitments, with average allocation of 8% of portfolio in 2023
- Insurance firms increased private credit allocations to 10% of assets by 2023, committing $300 billion total AUM
- Sovereign wealth funds allocated 5% to private credit in 2023, with $50 billion invested
- Private credit projected to reach $2.7 trillion AUM by 2028, growing at 17% CAGR
- Direct lending share expected to rise to 65% of private credit by 2027
- Fundraising forecasted to hit $250 billion annually by 2026, driven by insurance demand
The private credit industry grew rapidly to $1.7 trillion in assets by 2023.
Fundraising
- Private credit fundraising totaled $182 billion in 2023, surpassing private equity for the first time
- Number of private credit funds closed in 2023 reached 650, up 12% from 2022, with average fund size of $280 million
- Institutional investors committed $120 billion to private credit in 2023, representing 66% of total capital raised
- Largest private credit fund ever raised was Ares' $21.5 billion fund in 2023
- European private credit fundraising hit $45 billion in 2023, a 25% increase YoY
- First-time private credit funds raised $15 billion in 2023, accounting for 8% of total fundraising
- Dry powder from closed funds grew to $350 billion by end-2023, enabling $250 billion in deployments
- Insurance companies allocated $50 billion to private credit funds in 2023, up 30% from 2022
- Closed-end private credit funds dominated fundraising with 85% share, raising $155 billion in 2023
- Asia-focused private credit funds raised $12 billion in 2023, doubling from 2022
- Record $215 billion raised in private credit in 2023 across 1,200 funds
- Apollo raised $25 billion for private credit strategies in 2023
- 40% of 2023 private credit fundraising came from new LPs
- Evergreen private credit funds raised $30 billion in 2023, 16% of total
- UK private credit fundraising $15 billion in 2023, up 35%
- US pension funds committed $40 billion to private credit in 2023
- Average time to close private credit fund shortened to 14 months in 2023 from 18 in 2021
- Multi-strategy credit funds raised $50 billion in 2023
- Target fund sizes for private credit averaged $400 million in 2023, up 20%
- Middle East SWFs committed $10 billion to private credit in 2023
Fundraising Interpretation
It appears the world’s institutional investors, in a collective shrug at volatile public markets, have decisively parked their armored trucks in private credit’s driveways, flooding the sector with unprecedented capital as if it were the last structurally-stable bar in a financial hurricane.
Future Trends and Projections
- Private credit projected to reach $2.7 trillion AUM by 2028, growing at 17% CAGR
- Direct lending share expected to rise to 65% of private credit by 2027
- Fundraising forecasted to hit $250 billion annually by 2026, driven by insurance demand
- NAV lending to grow 30% YoY to $100 billion market by 2025
- Asia private credit AUM to triple to $450 billion by 2030, led by infrastructure debt
- ESG-focused private credit funds to capture 20% market share by 2027, raising $100 billion
- Defaults expected to peak at 4% in 2025 before normalizing to 2.5%
- Semi-liquid private credit products to attract $500 billion retail capital by 2030
- GP-led secondaries in private credit to reach $50 billion transactions annually by 2026
- Private credit expected to capture 15% of global corporate lending by 2030
- Regulatory changes to allow banks more private credit exposure by 2026, boosting market $500 billion
- AI-driven underwriting to reduce private credit costs 20% by 2027
- Infrastructure private credit to grow to $300 billion AUM by 2028
- Tokenized private credit assets to reach $100 billion by 2030
- Spread compression expected to limit new returns to SOFR+500bps by 2026
- Private credit syndication volumes to hit $150 billion annually by 2027
- Climate transition debt in private credit projected $200 billion by 2030
- Retail private credit via ETFs to grow to $300 billion AUM by 2028
- M&A financing via private credit to double to 40% share by 2026
Future Trends and Projections Interpretation
It's a gold rush so vast and meticulously planned that by the time you finish reading these projections, the asset class will have already grown another five percent, politely defaulted on a few borrowers, and syndicated its own excitement to a retail ETF.
Investor Profiles
- Pension funds represent 35% of private credit LP commitments, with average allocation of 8% of portfolio in 2023
- Insurance firms increased private credit allocations to 10% of assets by 2023, committing $300 billion total AUM
- Sovereign wealth funds allocated 5% to private credit in 2023, with $50 billion invested
- Family offices hold 15% of private credit AUM, preferring direct lending with $100 billion exposure
- Endowments and foundations average 7% allocation to private credit, up from 4% in 2019
- Retail investors accessed private credit via BDCs, with $200 billion AUM in 2023
- 60% of private credit LPs are North American, 25% European, 15% rest of world as of 2023
- Women-led private credit GPs manage $20 billion AUM, representing 3% of market in 2023
- High-net-worth individuals committed $40 billion to private credit evergreen funds in 2023
- Corporate treasuries hold $150 billion in private credit placements as of 2024
- 45% of private credit LPs are insurance companies, up from 30% in 2020
- US public pensions average 6.5% allocation to private credit in 2023
- Non-US LPs represent 40% of commitments, favoring Europe-domiciled funds
- Corporate pension plans hold $80 billion in private credit as of 2023
- 70% of private credit investors cite downside protection as key reason in 2023 survey
- Emerging manager private credit funds attract 15% LP interest from diverse pools
- Australian super funds allocate 4% to private credit, $25 billion total
- 55% of LPs re-upped to private credit GPs in 2023, average second commitment $150 million
- Tech sector family offices 30% allocated to private credit in 2023
Investor Profiles Interpretation
Private credit has become the financial world's favorite umbrella in a drizzle, where everyone from cautious pension guardians to tech-savvy family offices is huddling for yield and shelter, proving that when banks step back, a diverse crowd of investors is more than happy to step in and lend a hand—for a price.
Market Size and Growth
- Global private credit assets under management (AUM) grew to $1.7 trillion by the end of 2023, marking a 15% year-over-year increase
- Direct lending, the largest segment of private credit, accounted for 58% of total AUM at $989 billion in 2023
- The US private credit market expanded to $1.2 trillion AUM in 2023, representing 70% of global totals
- Private credit dry powder reached $500 billion globally in mid-2024, up 20% from 2023 levels
- Europe’s private credit AUM hit $400 billion in 2023, growing at 18% CAGR since 2018
- Asia-Pacific private credit market AUM stood at $150 billion in 2023, with 25% YoY growth driven by Japan and Australia
- Specialty finance within private credit grew to $250 billion AUM by 2024, up 22% from prior year
- Private credit as a percentage of total private capital AUM rose to 12% in 2023 from 8% in 2019
- Venture debt, a subsector, reached $75 billion AUM globally in 2023, growing 30% YoY
- Middle-market lending AUM in private credit hit $600 billion in the US by Q2 2024
- Private credit market size doubled from $800 billion in 2019 to $1.7 trillion in 2023
- Opportunistic credit AUM grew to $200 billion in 2023, up 28% YoY
- Latin America private credit AUM reached $30 billion in 2023, 40% growth
- Distressed debt segment AUM at $120 billion globally end-2023
- Private credit penetration in Europe middle market at 25% of lending in 2023
- US BDC AUM hit $250 billion in 2023, growing 15%
- Global private credit deployments reached $300 billion in 2023, up 18%
- Private credit as alternative to banks grew to 10% of US middle-market debt in 2023
- Mezzanine debt AUM in private credit at $180 billion end-2023
- Canadian private credit market AUM $50 billion in 2023, 20% YoY growth
Market Size and Growth Interpretation
The staggering growth of private credit from a niche corner to a trillion-dollar challenger means the financial establishment can no longer dismiss this asset class as just shadow banking, but must acknowledge it as a sophisticated, globe-spanning force now holding a conspicuous 10% of the US middle-market lending crown.
Performance Metrics
- Private credit funds delivered net IRR of 12.5% for vintages 2018-2023, outperforming public high-yield bonds by 400bps
- Direct lending funds averaged 11.8% net returns through Q1 2024, with top quartile at 15.2%
- Private credit default rates remained low at 1.2% in 2023, compared to 4.5% for syndicated loans
- Recovery rates for private credit averaged 75% in 2023, higher than leveraged loans at 55%
- Private credit funds showed volatility of 5.2% annualized vs. 12% for public bonds over 5 years to 2023
- Top decile private credit returns hit 18% IRR for 2020 vintage through 2024
- DPI for mature private credit funds (pre-2018) averaged 1.15x as of 2023
- Private credit excess returns over LIBOR+300bps averaged 250bps for 2015-2022 vintages
- Loss rates in private credit were 0.8% in 2023, vs. 2.1% in broadly syndicated loans
- Private credit TVPI for 2019 vintage reached 1.45x by mid-2024
- Private credit IRRs averaged 13.2% for 2021 vintage through Q2 2024
- Public NTB spread for private credit at 545bps in 2023, vs. 400bps historical avg
- Private credit Sharpe ratio of 1.2 over 10 years to 2023, outperforming HY by 0.4
- 2022 vintage private credit funds at 10.5% projected IRR
- Covenant-lite deals in private credit at 20% in 2023, down from 40% peak
- Private credit realized multiples averaged 1.8x for exited deals 2015-2023
- Yield on private credit portfolios averaged SOFR + 650bps in Q1 2024
- Beta to equity markets for private credit at 0.15 over 5 years to 2023
- Private credit funds 5-year rolling returns 11.9% as of 2023
- Leverage in private credit deals averaged 4.5x EBITDA in 2023
Performance Metrics Interpretation
While it may lack the thrill of public market spectacle, private credit has quietly built an empire on the simple, unglamorous pillars of higher returns, lower defaults, and less volatility, politely lapping high-yield bonds in the process.
Sources & References
- Reference 1PREQINpreqin.comVisit source
- Reference 2BAINbain.comVisit source
- Reference 3PITCHBOOKpitchbook.comVisit source
- Reference 4MCKINSEYmckinsey.comVisit source
- Reference 5CLIFFWATERDIRECTLENDINGINDEXcliffwaterdirectlendingindex.comVisit source
- Reference 6HAMILTONLANEhamiltonlane.comVisit source
- Reference 7BLACKSTONEblackstone.comVisit source
- Reference 8CNBCcnbc.comVisit source
- Reference 9SPGLOBALspglobal.comVisit source
- Reference 10ARESMGMTaresmgmt.comVisit source
- Reference 11OLIVERWYMANoliverwyman.comVisit source
- Reference 12CLIcli.orgVisit source
- Reference 13ASIANPRIVATEBANKERasianprivatebanker.comVisit source
- Reference 14MOODYSmoodys.comVisit source
- Reference 15CAMBRIDGEASSOCIATEScambridgeassociates.comVisit source
- Reference 16DECHERTdechert.comVisit source
- Reference 17SWFINSTITUTEswfinstitute.orgVisit source
- Reference 18FAMILYOFFICEfamilyoffice.comVisit source
- Reference 19NACUBOnacubo.orgVisit source
- Reference 20BUSINESSDEVELOPMENTCOMPANIESbusinessdevelopmentcompanies.comVisit source
- Reference 21FORBESforbes.comVisit source
- Reference 22WEALTHMANAGEMENTwealthmanagement.comVisit source
- Reference 23PWCpwc.comVisit source
- Reference 24ADBadb.orgVisit source
- Reference 25CLIMATEBONDSclimatebonds.netVisit source
- Reference 26BLACKROCKblackrock.comVisit source
- Reference 27LATINFINANCElatinfinance.comVisit source
- Reference 28EIFeif.orgVisit source
- Reference 29SECsec.govVisit source
- Reference 30KKRkkr.comVisit source
- Reference 31CLIFFWATERcliffwater.comVisit source
- Reference 32CFIB-FCEIcfib-fcei.caVisit source
- Reference 33BUYOUTSINSIDERbuyoutsinsider.comVisit source
- Reference 34APOLLOapollo.comVisit source
- Reference 35MOONFAREmoonfare.comVisit source
- Reference 36IVCAivca.co.ukVisit source
- Reference 37CALPERScalpers.orgVisit source
- Reference 38MUBADALAmubadala.comVisit source
- Reference 39LEVFININSIGHTSlevfininsights.comVisit source
- Reference 40ADVISORPERSPECTIVESadvisorperspectives.comVisit source
- Reference 41BURGISSburgiss.comVisit source
- Reference 42FTft.comVisit source
- Reference 43MORNINGSTARmorningstar.comVisit source
- Reference 44DEALOGICdealogic.comVisit source
- Reference 45THINKINGAHEADINSTITUTEthinkingaheadinstitute.orgVisit source
- Reference 46NASRAnasra.orgVisit source
- Reference 47WTWCOwtwco.comVisit source
- Reference 48GREENSTREETgreenstreet.comVisit source
- Reference 49CALLANcallan.comVisit source
- Reference 50ASUPERasuper.com.auVisit source
- Reference 51ILPAilpa.orgVisit source
- Reference 52BISbis.orgVisit source
- Reference 53DELOITTEdeloitte.comVisit source
- Reference 54CONSENSYSconsensys.netVisit source
- Reference 55GOLDMANSACHSgoldmansachs.comVisit source
- Reference 56LSTAlsta.orgVisit source
- Reference 57CLIMATEPOLICYINITIATIVEclimatepolicyinitiative.orgVisit source
- Reference 58ETFetf.comVisit source