Moody’s: Private credit to hit $3tn by 2028
The private credit market is set to grow to $3tn (£2.3tn) by 2028 as the industry rapidly evolves beyond direct lending, Moody’s research has said.
Rising investor demand, bank partnerships and exchange-traded funds (ETFs) are predicted to fuel the industry’s progression.
The ratings agency cited Apollo Global’s recent tie-up with State Street to launch a private credit ETF.
It also highlighted Apollo’s funding deals with BNP Paribas and Citigroup as examples of increasingly larger bank partnerships.
“These strategic partnerships are just the latest illustration of how private credit is rapidly evolving beyond the scope of its core direct lending to corporate middle market companies,” Moody’s said.
“Private credit is a roughly $1.5tn business today, with direct lenders accounting
for $800bn of that total, which is likely to grow close to $3tn over the next three years.
Private credit is evolving quickly as investors allocate more funds in this space. At the same time, direct lending competition with the broadly syndicated loan market has only intensified, exerting pressure on traditionally high premiums that direct lenders earn for holding illiquid positions. This competition – which has spurred asset managers to seek new horizons – will likely rise as the Federal Reserve continues to cut rates following its 50-basis point interest rate cut on 18 September.”
Moody’s also highlighted the potential growth of the broader asset-backed finance market, which is forecast to increase to as much as $40tn.
Read more: Apollo exec forecasts rise in hybrid bank/private credit deals
“As banks increasingly retreat from lending, asset-backed finance is rapidly reshaping capital flows across the economy – for investment-grade as well as speculative-grade borrowers,” the report added.
However, Moody’s analysts warned that rapid growth of the private credit market could lead to heightened regulatory attention, particularly as fund managers target the lower end of the wealth market.
“Ultimately, heightened transparency may well be an inevitable by-product of private credit’s exponential growth,” the report said.
“For today’s ambitious alt asset managers, it will be increasingly critical to ensure that risk management oversight keeps pace with fast-evolving growth into more regulatory sensitive parts of the market, such as more ‘mom & pop’ retail investors.
“On the flip side, too much transparency and liquidity could reduce the attractive premiums the alternative asset managers have been able to maintain.”
