Private debt
The next phase for private credit markets
2 min read 29 Oct 21
Follow us
In this latest paper, we reflect on the changed, and changing, landscape for private credit investing. We share our perspective on the multi-faceted role private credit could have in helping to finance the post-pandemic recovery, as well as in supporting some of the changes to drive a greener, more sustainable and fair recovery for current and future generations.
We highlight some of the key multi-year themes influencing private credit today, and why we believe these could help to usher in a new era for the asset class, before considering what the coming five to ten-years could have in store.
The changing landscape
The resilience and adaptability of the asset class during the ongoing Covid-19 pandemic has helped to cement private credit’s permanence in the minds of strategic asset allocators.
As the focus shifts to recovery and rebuilding in a post-pandemic world, we believe private credit has an important and multi-faceted role to play in helping to finance this economic rebuilding, and also supporting some of the changes the world needs to support a green, sustainable and fair recovery for current and future generations.
Key themes shaping the present and future
In the paper we explore three multi-year themes shaping the present and future of private credit markets. These key themes are already influencing both the opportunity set and the lending landscape for private lenders.
- ESG and impact in private markets: Many believe we are going through a paradigm shift in investing, with the swing to sustainability being profound, urgent and irreversible. Public markets are evidently more advanced in terms of implementation, however the momentum in ESG these days in the private world is just as remarkable and palpable. Private lenders too, are ready to step it up a gear – recognising room for improvement and to encourage it via engagement.
- Big data and technology: The build-out of innovative technological solutions and sophisticated data analytical tools that extend beyond the capabilities of off-the-shelf software is turning some of the data challenges in private credit into opportunities. Embracing the use of big data techniques and technology-enabled solutions is helping to change things for the better for private lenders in several key areas – potentially enabling better outcomes for investors.
- New frontiers: The appetite to come up with new, innovative investment ideas is integral to private credit’s ongoing evolution and widening appeal among different types of investors and borrowers alike. Expanding access to more unconventional asset types and opportunities under the private credit label is also helping to challenge traditional, tightly-held definitions of the asset class.
What’s next for private credit markets?
The varying sectors within private credit are at different stages of maturity, although one constant has been the growth in new markets under the private credit label, which has led to greater choice for investors to diversify and generate strong risk-adjusted investment returns for their portfolios. It has also has helped to promote more efficient capital markets.
Many of the factors that have supported the growth, development and evolution of private credit over the years (and the drivers behind them), including those that have supported lending outside of the banking sector, continue to do so – with recognition that non-bank lending plays a valuable role connecting capital markets with the real economy.
"While this isn’t 2008 again, an acceleration of European bank deleveraging could potentially result in greater and more varied opportunities for alternative providers of capital."
The growth in private equity funds is arguably leading to opportunities for private lenders, with equity expansion into newer sectors also helping to expand the definition of real assets – like infrastructure and real estate – in the debt markets.
Looking ahead to the next five to ten years, the direction of travel seems clear as private credit moves into the mainstream as institutional investors make private assets a more strategic and critical part of their portfolio, while the trend towards democratising private assets also looks set to gain momentum.
The past two decades have been no short of transformational for the asset class and the next decade promises to be just as (r)evolutionary.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.