2 min read 29 Oct 21
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 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.
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.
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.
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.