‘Massive’ $225bn opportunity for direct lenders

There is a $225bn (£167.6bn) opportunity for direct lending in the US over the next couple of years, according to private credit investment firm Future Standard (formerly FS Investments).

“The opportunity for direct lending funds remains massive in the coming years,” the firm said in its most recent market outlook.

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“If we expect leveraged credit financing demand continues to grow with GDP (we assume a five per cent nominal growth rate), and non-private credit lenders continue growing at their three-year average rates, the lending opportunity available to be filled by direct lenders sits around $225bn per year”.

“Although the supply of new issuance has been limited, direct lending continues to represent a leading opportunity to finance growth, especially in situations where operational improvement initiatives underpin the borrower’s ability to repay debt.”

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In 2024, US direct lenders of all types raised roughly $160bn in equity capital, equating to about $229bn in lending capacity when accounting for leverage, according to Future Standard.

“In other words, current levels of demand for private credit financing and the growth in supply of those funds are roughly equal – hardly a sign of overcapacity,” the firm added.

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The firm concluded that the strategy has continued to perform consistently for investors, returning 10.37 per cent in the past year.

“This outpaced the strategy’s performance since inception (9.54 per cent), despite new issue spreads tightening over the past year.”