In 2024, the private credit market grew to nearly US$2 trillion AUM. The sector continues to move deeper into the mainstream, and synergies with private equity and banks are on the rise. With regulatory scrutiny expected to grow, and ESG considerations likely to play an important role for investors, learn more about key trends, sector matter highlight and how this resilient industry will navigate the challenges and opportunities of 2025.
Key Private Credit Trends and Developments
- Amid high interest rates, a slowdown in PE deal activity and tightened lending from traditional banks, the private credit market grew to reach almost US$2 trillion in AUM in 2024.
- Private credit has rapidly expanded from its direct lending roots into new areas, including an ever-diversifying range of asset-backed finance structures, with bespoke deals shaping the market.
- Demand for higher yields, diversification and predictable cash flows has increased participation in the private credit market from insurance and retail investors, new players such as pension funds and sovereign wealth funds, and even banks.
- In Europe, new rules introduced as part of amendments to the alternative investment fund managers directive (AIFMD) signal growing efforts by regulators to increase transparency, protect investors and ensure market stability.
Outlook for Private Credit in 2025
Private credit to move deeper into the mainstream
While the U.S. remains the dominant private credit market worldwide, adoption and scaling of the asset class across Europe ─ which now accounts for approximately one quarter of global private credit raised since 2008 ─ shows no signs of slowing down. In Asia, private credit in the green infrastructure space has emerged as one bright spot in a challenging fundraising market.
Rise in synergies with private equity and banks
Recent high-profile partnerships between AGL Credit Management and Barclays and Centerbridge Partners and Wells Fargo have demonstrated how banks can leverage their existing customer networks to participate in the direct lending market ─ by teaming up with private credit investors to create a direct lending fund or platform, seeded by financing from both the bank and private credit investors. With considerable benefits for both parties, we expect to see significantly more of these strategic relationships in the year ahead. Likewise, we anticipate an increase in hybrid private equity and private credit financing models as reliance on private credit from private equity-backed companies continues its upward trend. Another element of the bank/private credit partnership is banks increasingly disposing of nonstrategic loan portfolios to the private credit industry to right-size weighted assets.
Regulatory scrutiny to intensify across all jurisdictions
EU member states have until April 16, 2026, to prepare for new laws, regulations and administrative provisions introduced under the AIFMD 2.0 directive, which places new obligations on alternative investment funds that originate loans. Regulators in the U.S. and UK have indicated their intentions to better understand risks and exposure related to financial systems and private capital, which may lay the foundations for regulatory interventions in these jurisdictions.
ESG considerations may play an increasingly crucial role in investors' portfolios.
In recent years, Environmental, Social and Governance (ESG) integration in private credit has moved beyond simply being a part of the due diligence and screening phase, to focus on areas where investors can influence change. While it remains to be seen how a Trump administration will impact ESG considerations in the U.S., investors keen to understand the broader impacts of their investments will increasingly call for greater transparency, reliable data on ESG metrics and evidence of responsible investing.
Interest rate cuts unlikely to dampen growth in private credit
The private credit market has proven remarkably resilient amidst changing market conditions. While returns may be impacted by interest rate cuts in 2025, the continued expansion of the asset class into diverse forms of lending, as well as its demonstrated agility in adapting solutions for the marketplace, all point to sustained growth in the sector in the year ahead.
Dechert advised Ares Funds on a £500 million preferred equity investment from a consortium led by Searchlight Capital Partners and Ares for environmental consultancy RSK Group, and the commitment of an incremental £300 million debt facility to RSK. Total debt facilities provided by Ares amounted to £1.4 billion.