The outlook for private credit is “still sunny”, according to AllianceBernstein, despite the potential for some “short-term bumps in the road”.

In an article, Matthew D. Bass, head of private alternatives at the asset manager, noted the rapid expansion of the asset class in recent years and said he expects this growth to persist as lower interest rates boost deal volumes and private financing options evolve to include a wider array of asset classes and risk/return profiles.

“There may be some short-term bumps in the road,” Bass added. “While the global economy performed admirably in 2024, with GDP growth likely to weigh in at around 2.6 per cent, the range of potential outcomes in the year to come remains wide. Interest rates appear likely to fall further, which should ease pressure on borrowers. But in the US, the potential for higher tariffs – and stickier inflation – may limit the extent of the decline.”

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Bass said he expects corporate direct lending to remain the “lynchpin” of private credit, and suggested that lower interest rates may ease pressure on borrowers and boost deal flow.

“A decline in the base rate used to price direct corporate loans suggests the overall return potential may fall short of the outsize returns that some direct lending strategies delivered in 2023 and 2024,” he said. “But the risk-adjusted return potential remains strong, underpinned by still-elevated yields and resilient borrower fundamentals.”

Asset-based finance is another area that Bass highlighted, noting the breadth of investment opportunities.

However, he warned that renewable energy financing has a less certain outlook in the US, as incoming President Donald Trump has talked about rolling back federal tax credits for renewable energy projects.

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Furthermore, his pledge to introduce tariffs on imports could impact the sector, Bass added, as China provides most solar panels and lithium-ion batteries.

As a result, investors may need to be more selective about opportunities, he said.

“But over the longer run, we don’t expect policy changes to fundamentally alter the role renewables play in the energy ecosystem or the investment opportunities they present,” Bass added. “For example, the rapid growth of generative AI alone is likely to require more power than the US electrical grid can supply today, and we believe renewables will be needed to meet that demand.”

Read more: AllianceBernstein: Direct lending returns will stay high despite base rate cuts