Private credit to deliver high single digit returns next year

Private credit is set to deliver high single digit returns in 2025, according to a new analysis by Partners Group.

The alternative asset manager’s Private Markets Outlook 2025 has predicted that the Fed is likely to implement four to five rate cuts next year, potentially reaching 2.5 per cent over the next five years.

However, despite the rate cuts, Partners Group said that it expects private credit to deliver high single-digit returns, as base rates are unlikely to return to the post-global financial crisis lows.

“Private credit investments are expected to continue to generate high single digit returns overall,” said Partners Group.

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“At the same time, rate cuts could also create some tailwinds for the asset class. Lower borrowing costs will have a positive impact especially on the mid-market, allowing businesses to take on more leverage.

“This positions private credit lenders more favourably compared to traditional lending banks, which are often limited in their ability to support high leverage.

“Additionally, lower rates can stimulate buyout transactions and create more opportunities for lenders.”

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The report emphasised the importance of taking a disciplined approach to underwriting in the year ahead, due to the changing investment environment.

Partners Group recommended that private credit managers should “model realistic forecasts that consider potential downside scenarios and their impact on businesses’ ability to support a proposed credit package”.

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