Executive Summary
Private credit has become a core part of the global financing ecosystem, but as the market has scaled, so too have the questions around its structure, resilience and long-term return profile.
This paper steps back from the noise to provide a balanced, practitioner-led view of the asset class today, highlighting both the strengths that underpin its growth and the structural risks that are beginning to emerge.
At its core, our view is simple:
Private credit remains an important and attractive asset class, but outcomes will increasingly depend on discipline, structuring and the ability to operate across both public and private markets.
Key Takeaways
- Private credit plays a critical role in global markets, offering flexibility to borrowers and attractive risk-adjusted returns to investors
- Structural risks are emerging, driven by capital inflows, weaker underwriting and pro-cyclical behaviour
- Default and loss expectations are likely to increase from historically low levels
- The most resilient strategies will combine discipline, flexibility and cross-market insight
- Managers who operate across both public and private credit are best positioned going forward
The Evolution of Private Credit
Private credit emerged following the Global Financial Crisis as banks retreated from corporate lending, creating a structural funding gap.
Since then, it has evolved through three distinct phases:
- Middle-market lending (2010–2016)
- Institutionalisation (2016–2021)
- Mass market expansion (2021–present)
Today, it represents a significant and growing part of the global credit ecosystem, with increasing scale, participation and complexity.
(From page 6 of white paper download)
The Good: Why Private Credit Matters
Private credit provides clear structural advantages:
For borrowers
- Certainty of execution
- Structural flexibility
- Confidentiality
- Relationship-driven restructuring
For investors
- Spread premium vs public markets (c.150–250bps)
- Senior secured positioning and stronger protections
- Lower correlation to public markets
- Attractive risk-adjusted returns
These characteristics underpin its continued importance in global markets.
Spread premium vs public markets
The Bad: Structural Pressures Are Emerging
As the asset class has grown, several structural challenges are becoming more visible.
1. Pro-cyclicality and capital inflows
Large inflows — particularly from insurance capital — have compressed spreads at a point in the cycle where risk is increasing.
2. Weakening underwriting discipline
Competition and deployment pressure have led to looser structures and increased use of tools such as PIK.
3. Portfolio construction challenges
Many portfolios have been built through accumulation rather than active risk management.
Rise in “bad PIK” usage
The Ugly: The Cycle Turns
The most significant risks lie ahead.
Rising defaults and loss severity
Default rates are likely to increase, particularly in asset-light sectors such as software, where recovery values can be significantly lower.
Duration risk
Capital is remaining invested for longer than expected, increasing exposure to downside risks and limiting exit options.
Market tipping point
Redemptions, liquidity pressures and structural constraints could create broader spillover effects across credit markets.
A Key Structural Insight
Private credit cannot be viewed in isolation
The traditional separation between public and private credit is breaking down.
- Public markets provide real-time price discovery
- Private markets offer structuring flexibility
- Opportunities increasingly arise between the two
Managers who operate across both markets are better positioned to identify mispricing, manage risk and capture opportunity.
What This Means for Investors
Private credit remains an important allocation — but the environment is changing.
Going forward, success will depend on:
- Strong underwriting discipline
- Active portfolio management
- Structural flexibility
- The ability to move across public and private markets
This is not about abandoning private credit — but about approaching it with greater selectivity and integration.