Private credit has been one of the fastest-growing segments of the financial system over the past 15 years. The asset class, as commonly measured, totaled nearly $2 trillion by the end of 2023, roughly ten times larger than it did in 2009.1 While that total remains a small fraction of the broader fixed-income landscape, private financing solutions continue to perform well—and win, in many instances—against bank and public alternatives. In fact, our analysis suggests that the size of the addressable market for private credit could be more than $30 trillion in the United States alone (Exhibit 1).
Private credit’s growth to date has been largely concentrated in direct lending, a strategy fueled by the twin tailwinds of banks’ retrenchment from leveraged lending and private equity’s (PE) rapid expansion. But amid the higher rate and slower PE deal environment, the asset class has begun to expand into new areas, including a wide variety of asset-based financing structures.
At the same time, the sources of capital seeking private credit exposure continue to diversify, with significant inflows from retail and insurance capital pools. Additionally, the competitive landscape has become broader and more crowded, with increasing direct participation from insurance companies, traditional asset managers, and even banks.
These changes present both challenges and opportunities for market participants across the lending landscape. Most notably, with banks facing regulatory changes2 and increased competition from nonbank players, we see the potential for an accelerated transition from bank balance sheets to nonbank entities across a broad range of asset and borrower types.
This transition represents a generational opportunity for existing private-credit funds, other asset managers, and insurance companies that can establish reliable origination in these areas. It also signifies a strategic inflection point for banks, which will need to adapt their business and operating models in the face of “coopetition” from an array of scaled buy-side entities with long-dated sources of capital.
