Private credit market set for significant growth in 2025
Macquarie Capital has predicted that the private credit market is set for significant growth in 2025, despite the slower pace of interest rate reductions, persistent valuation gaps and ongoing geopolitical and macroeconomic uncertainty.
The firm noted that global M&A is recovering from a 10-year low, global GDP has outperformed expectations, and central banks have begun easing monetary policy. While activity levels remain well below the long-term average, last year deal volumes grew seven per cent, according to Preqin data, while values increased by 15 per cent to $3.5tn (£2.72tn), bringing the market closer to pre-pandemic levels.
“There was a welcome uptick in global M&A activity towards the end of last year, reflecting growing confidence among dealmakers,” said Bill Eckmann, head of principal finance and private credit, Americas, at Macquarie Capital.
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“Deal flow remains far from normalised levels but mounting pent-up demand and improving economic conditions should inject fresh impetus into the market this year.”
Macquarie Capital noted that renewed dealmaking momentum would likely further accelerate the growth of private credit, as the alternative asset class continues to mature.
Eckmann added that private credit has become a fast-growing asset class that’s taken a permanent share of the corporate lending market, with growth being driven by both secular shifts and repeat business from the expanding borrower base.
“Private credit offers a good risk-return opportunity for investors and as more businesses look to benefit from it, and market activity picks up, it offers even greater potential,” said Eckmann.
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Despite some ongoing and new market uncertainty, optimism about private equity dealmaking this year is as high as it’s been since the record levels of activity seen in 2021, said Eckmann, and this will provide further growth opportunities for private financing, given their synergistic relationship.
“Growing demand together with the more favourable macroeconomic backdrop are making the market increasingly conducive to doing transactions,” he added.
“There’s a buildup of investment managers looking to exit portfolio companies and return capital to LPs, and with each quarter of subdued activity that buildup increases. The tipping point isn’t far off and when the market turns, I anticipate there’ll be a significant increase in transaction activity, a lot of which will go to private credit.”
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