Investment specialists are reportedly shifting their strategies towards private credit markets.
In the ever-evolving world of finance, private lenders are stepping into the spotlight, filling a void created by the maturing commercial real estate debt. This shift is being closely observed by economists like Bob Fraser, chief economist at alternative investment firm Aspen Funds, who sees capital flowing into strategies that align with macro trends and offer real-world durability.
Investors are demonstrating a strong demand for not just yield, but also for resilience. This trend is driving fund managers and institutional allocators to move decisively into private credit. The growth in this sector is rapid, fuelled by banks' retreat from lending, investors’ demand for higher and less correlated yields, and a shift towards flexible financing solutions for middle-market companies and specialized sectors like healthcare and technology.
Private credit is expected to grow significantly, potentially reaching $2.8 trillion by 2028. This surge is due, in part, to the maturity wall of high-yield bonds and leveraged loans approaching in 2026–2027, driving refinancing activity in private credit. Additionally, private credit managers are finding value in non-corporate sectors such as asset-based financing, with improving credit quality marked by lower leverage ratios and better borrower profiles.
The appeal of private credit lies in its ability to fill the financing gap left by traditional banks, which have tightened lending due to regulatory constraints and higher interest rates. Private credit offers faster deal execution with less disclosure compared to syndicated loans or high-yield bonds, making it attractive especially in uncertain markets. Moreover, private credit provides access to illiquidity premiums, portfolio diversification, and the ability to finance leveraged buyouts or exits for private equity firms when traditional credit markets are constrained.
Managers in this sector are securing double-digit yields with strong downside protection in many cases, through preferred positions, collateralized assets, and control provisions. However, the current environment is not without its challenges. Geopolitical risk is identified as a top challenge for portfolio companies in the second half of the year.
Despite these challenges, Bob Fraser considers the current environment for credit investors to be one of the most attractive in over a decade. With more than $1.5 trillion in commercial real estate debt maturing through 2027, the demand for private credit shows no signs of slowing down. Allocators seeking yield without equity risk find this moment particularly attractive, as traditional lenders remain sidelined.
According to JP Morgan, variation in private credit manager performance will increase, underscoring the importance of due diligence and careful selection for investors in this sector. As private credit continues to grow and evolve, it's clear that it will play a significant role in the financial landscape for years to come.
[1] Private Debt Investor, "Global Private Debt 2021: A Record Year for Fundraising," 2021. [2] Preqin, "Private Debt H1 2021 Fundraising Report," 2021. [3] KPMG, "Private Debt: Navigating the Market Shifts," 2021. [4] McKinsey & Company, "Private credit: The next wave," 2019.
Businesses seeking alternative financing options are increasingly turning to private credit, viewing it as a viable means to fill the void left by traditional banks. This trend is reflective of the growing demand from investors, not just for yield, but also for resilience and flexibility in financing solutions, particularly in sectors like healthcare and technology.
