What does 2025 have in store for the private credit markets?
Alternative Credit Investor asked industry experts about their predictions for this year…
Ryan McGovern, managing director and investment committee member at Star Mountain Capital
“We expect to see private credit secondaries opportunities continue to increase along with direct private credit investment opportunities in the coming years.
“In the US lower middle-market, the vast majority of these businesses are founder or owner-operated and many of them are baby boomers nearing retirement age, creating a lot of opportunities for this type of transition capital that we and smaller private credit funds provide. We see continued robust deal activity in both our direct investing and in our secondaries investing and believe it will only increase in the future.”
Isaiah Toback, co-chief investment officer at Castlelake
“We’re going to see a rapid expansion in things away from corporate direct lending. I think that the market is starting to really take shape and understand that there needs to be core allocations to any mature private credit allocation for an LP that includes products in addition to corporate direct lending.
“In fact, what I’ve been hearing in the last couple of quarters is groups who are establishing new private credit allocations where corporate direct lending actually doesn’t seem to be a central tenant anymore. It is a complementary approach. And I expect that to accelerate in 2025.”
Ana Arsov, managing director, global FIG and private credit, Moody’s Ratings
“We believe private credit’s momentum in fundraising and growth will persist into 2025.
“Although we anticipate that interest rate cuts could slightly reduce the profitability for direct lenders, these cuts are expected to boost sponsor M&A activity.”
Patrick Marshall, head of private credit, Federated Hermes
“The 2025 outlook for mid-market direct lending remains favourable for experienced and disciplined lenders, even if there are a few significant economic, geopolitical and regulatory risks on the horizon which will have to be managed with care.
“2025 will be a year where investment discipline should lead to great rewards.”
Joanna Munro, chief executive of alternatives at HSBC Asset Management
“We are positive on the outlook for private credit in 2025 with a range of credit strategies to meet investor investment objectives.
“The private credit market has been particularly resilient in recent years. Unlike the public market which experienced bouts of volatility in 2024, private credit strategies have been steadily generating positive returns and we expect this to continue into 2025.”
Walter Gontarek, chief executive and chair of Channel Capital Advisors
“We foresee strong growth and related demand for credit by private market issuers, including in the data/software, agentic AI, freelancer and consumer goods markets where we fund actively, based on client forecasts (£1.25tn).
Michel Lowy, chief executive and global co-portfolio manager at SC Lowy
“Broadly, I predict that private credit will continue to expand its role in the global financial ecosystem in 2025. From what we’re seeing from clients and partners this is being driven by increasing demand for customised financing solutions – something that traditional banks and lenders cannot provide (£1.25tn).
Nicolas Nedelec, partner, private debt, Eurazeo
“We are in a transition phase in the industry where we’ve had 10 years of very strong growth and the asset class is now maturing and being more substantial.
“On the investment side, everybody – ourselves included – expects that 2025 should be a pretty busy year. The trend right now is really good, we’re seeing lots of deal flow coming in from all geographies.”
Michael Von Bevern, co-managing director, Americas, Suntera Fund Services
“Private credit, especially direct lending, has the potential to offer greater risk-adjusted returns for institutional investors in 2025 compared to other asset classes.
“With base rates staying elevated longer than many investors expected in 2024, and as central bankers in developed markets prepare to initiate easing cycles, private debt has emerged as a compelling alternative to private equity for institutional investors, offering attractive risk-adjusted returns.”
Folko de Vries, partner, Clifford Chance
“Based on dry powder available to private equity funds and the current market share of private credit compared to banks, there seems to be ample opportunity for private credit to grow further.
“The general outlook for private equity in 2025 seems to be positive and this is aligned with what we hear from sponsor clients.”
David Wilson, partner at 17Capital
“We’re focused on NAV finance, and we have seen a lot of growth in that area over the last few years. We really see it as almost a subcategory within private credit in its own right now, and one of the fastest-growing areas. We see continued growth in that area, driven by two things. One is that the collateral pool is large and growing all the time, and it’s expected to grow at around 10 per cent per annum, so doubling over the next six, seven years or so.
“And the other thing that’s really driving the growth is just the increased adoption of NAV finance solutions and their use by private equity groups.”
Nick Holman, head of the UK and Ireland for Kartesia
“The market has been up and down over the last couple of years, but I do think the overall long-term trends are positive for private credit.
“There’s a question of whether M&A will bounce back strongly or not for next year. I’m getting a bit of a mixed picture in terms of the amount of volume that will come through. And we’ve seen the compression in yields and terms because people have raised very well, but there hasn’t been enough volume of M&A. In order for the market to stabilise and reach an equilibrium, we need some bounce back in M&A volumes.”
Arif Bhalwani, chief executive of Third Eye Capital
“As we approach 2025, the private credit market – particularly direct lending to sponsor-backed companies – faces significant headwinds.
“Once a high-performing asset class, direct lending now finds itself grappling with tighter spreads, shrinking premiums over liquid credit, and increased competition – all of which suggest the strategy may have peaked in its current form.”
Matt Bass, head of private alternatives at AllianceBernstein
“What we’re going to see in 2025 is the continued acceleration of a longer-term secular trend, which is the growth and diversification of private credit as an asset class, which started its journey as a niche opportunistic investment to now a core allocation.
“In addition to the growth in corporate private credit, there are large segments of the market that continue to move out of the banking system, such as asset-based finance including residential mortgages, commercial mortgages, consumer credit, and transportation. Private capital is playing an increased role here in financing the economy more broadly.”
Kathryn Saklatvala, head of investment content at bfinance
“Private credit has absolutely demonstrated its resilience through the recent macroeconomic transitions and turmoil.
“That being said, I think there are things to look closely at. Spreads have compressed somewhat in the past year, and that varies depending on which part of the market you’re looking at. You need to think carefully about things like higher use of payment-in-kind, which defers a greater proportion of return to a later period and makes realisation more dependent on a subsequent event, such as a refinancing or a sale/exit.”