How has private credit grown in importance since the Great Financial Crisis? What is the current market size in the US and other regions?
The global private credit industry, mainly providing loans to corporate borrowers through closed-end credit funds sponsored by the same firms that back private equity vehicles, has grown dramatically since the 2008 financial crisis, reaching $2.8 trillion in assets under management (AUM) at the latest count. This is a sharp increase from $200 billion in the early 2000s, according to the Basel, Switzerland-based Bank for International Settlements (BIS).
The appeal of private credit to corporate borrowers is evident: Middle-market firms, especially those supported by private equity sponsors, favor private credit for its speed, flexibility, confidentiality, and fewer disclosure requirements compared to public bond markets available through broadly syndicated loans. This appeal is also beginning to attract larger, more creditworthy companies.
The industry has filled a void left by traditional banks, at least in the U.S. An analysis by global consultancy Deloitte of U.S. Federal Reserve data shows bank lending decreased from 44% of all U.S. corporate borrowing in 2020 to 35% in 2023.
The trend is clear in leveraged buyouts. Historically, banks have dominated Leveraged Buyouts (LBOs) financing. However, since 2020, private credit funds have financed more LBOs than the syndicated loan market, according to the PE industry publication, PitchBook.
The private credit market has also changed a lot. Originally focused on special situations and distressed debt, private credit is now a dominant source of direct, cash-flow-based loans that fund managers say traditional banks would not typically approve. Besides special situations, distressed debt, and the former, senior form of “direct lending”—which includes commercial loans used by companies for working capital or growth funding—private credit also includes subordinated forms like mezzanine and venture debt, which have equity features; asset-based real estate and infrastructure financings; or some mix of these. These loans are usually held until they mature, involve customized covenants, and feature a close lender-borrower relationship, setting them apart from the syndicated loan market.
However, direct lending to corporates now dominates the market. According to PitchBook, fundraising for private credit peaked in 2021 at a total of $293 billion in new commitments. For that year, direct lending accounted for $144 billion of capital newly committed to credit funds, or about 49%. From 2009 to 2023, direct lending captured an average share of 26.5% of total fundraising, or roughly $47.5 billion in new capital each year. Fitch Ratings estimates that direct lending now makes up about half of all loans outstanding by credit funds.
Globally, the BIS estimates that total outstanding private credit loan volumes have increased from around $100 billion in 2010 to over $1.2 trillion today, with more than 87% of the total originated in the U.S. Europe (excluding the United Kingdom) accounts for about 6% of the total in recent years, and the U.K. for about 3% to 4%, with Canada making up most of the rest. The Asian market is small but growing.