Private Credit Market Perspective 2024-2025
Takeaways from discussions with our clients and partners at Private Credit Event, London — March 2025
Private credit volumes rebounded with a 20% year-over-year increase in 2024, signaling renewed growth. However, riskier segments like mezzanine and distressed debt saw sharp declines—mezzanine dropped from $40B to $7B, and distressed debt from $53B (2020) to $10B. As M&A picks up and refinancing challenges mount in a high-rate environment, these segments may resurge in 2025.
Resilient Volumes, Shifting Mixes
Private credit volumes have evolved markedly over the last five years. Direct lending peaked at $96 billion pre-pandemic and surged to $154 billion during the crisis, before correcting to $120 billion in 2024. Yet the market saw a 20% year-on-year increase last year, suggesting a possible floor and renewed growth.
Meanwhile, riskier segments such as mezzanine and distressed debt have contracted significantly: mezzanine declined from a 2023 peak of $40 billion to just $7 billion in 2024, and distressed debt dropped to $10 billion, a far cry from its 2020 peak of $53 billion.
Special situations followed a similar path, retreating to $25 billion after hitting $46 billion in 2022. However, tighter monetary policy and potential dislocations in 2025 may revive these strategies. As M&A activity rebounds and credit markets normalize, the prevailing view is that opportunities in mezzanine and distressed debt will re-emerge, particularly as corporates face refinancing challenges in a higher-for-longer rate environment.
Returns Still Stack Up
Private credit remains competitive on a return-adjusted basis. Top-quartile funds generated an average return of 11.6%, with the median at 8.7% and the bottom quartile at 6.9%. Compared to other alternatives, private credit outperforms real estate at the median level by 100bps, while holding a near-par return to infrastructure at the top end. Investors are increasingly treating private credit as a core allocation, driven by its consistent income and defensive positioning. This track record—spanning 15 years—has helped the asset class gain legitimacy among LPs, many of whom now expect it to remain central even through a future downturn.
Source: MSCI Private Capital Solutions. McKinsey & Company, Private Credit Connect Summit Presentation, London, March 2025
Private credit continues to distinguish itself as one of the most predictable private asset classes, delivering consistent performance across market cycles. From 2012 to 2021, the asset class recorded a median IRR of 8.7%, outperforming real estate and rivaling infrastructure on a risk-adjusted basis. The relatively narrow spread between top- and bottom-quartile returns (11.6% to 6.9%) shows private credit's resilience and appeal to investors seeking dependable income and lower volatility compared to more dispersion-prone strategies like private equity.
Sentiment: Cautious Optimism and Emphasis on Discipline
Across panels, UK-based allocators appeared more optimistic than their peers in Miami. Joel Holsinger (Ares) noted an overvaluation in public equities, especially U.S. tech, warning against complacency in pricing. Ares, having launched in 2007 post-GFC, welcomes market stress as a means to capture better terms and tighter covenants. This pro-cyclicality reflects a broader belief that volatility enables better risk-adjusted investments.
Participants at the event emphasized the value of evergreen structures and noted investor appetite for senior secured lending in the 12–15% range—returns that are now enticing even equity-focused allocators. However, she flagged concern around 'liquid credit' products lacking robust underwriting platforms. As one speaker noted, innovation doesn’t have to be flashy—effective capital preservation and analytical rigor are paramount.
Source: McKinsey & Company presentation at the Private Credit Connect Summit, London, March 2025.
Despite macroeconomic uncertainty, limited partners (LPs) are demonstrating sustained confidence in private credit. According to recent data, 47% of LPs plan to increase their allocation to private credit within the next 12 months, with nearly the same (46%) intending to grow their exposure over a three-year horizon. This forward-looking sentiment positions private credit ahead of other alternative asset classes, underscoring its role as a core, income-generating component in diversified portfolios.
ABF: The Next Frontier
NAV Finance Rising, Platforms Consolidating
NAV-based financing is gaining traction. Firms like Colliers Capital and NCL Capital Partners are structuring 10-year NAF facilities, enabling smaller managers to finance secondaries or enhance deployment strategies. Richard Sehayek (ex-Credit Suisse, now Ares) emphasized that public ratings, while not always necessary, are increasingly useful for broadening access to insurance capital.
Originating and underwriting capabilities are increasingly seen as the key differentiators. The post-GFC shift toward non-bank lending has created a structural opportunity for platforms, but scale and selectivity remain vital. Speakers repeatedly noted that alpha now comes from origination—often through country-specific or sector-specialist teams. KKR and AB CarVal highlighted that effective deal sourcing requires deep local expertise and disciplined risk assessment.
Asset-based finance (ABF) emerged as a major thematic opportunity. Defined broadly as any cash-flow generating asset, ABF spans consumer and commercial mortgages, transportation, insurance receivables, student loans, and SME financing. With only $1 trillion of the $20 trillion ABF universe deployed, the potential is significant. Compared to direct lending—$3 trillion in size, with $1.5 trillion deployed—ABF offers LPs a path to diversify away from traditional corporate credit.
Industry leaders emphasized that successful ABF execution depends on origination capability, portfolio granularity, and credit enhancement structures. The average rating in ABF is BBB+, yielding around 100bps over benchmark—lower than direct lending, but backed by stronger collateral and amortizing structures.
Regional and Sectoral Opportunities
Geographically, the U.S. and Europe continue to dominate due to scale and regulatory predictability. While Latin America and India were discussed as high-growth markets, most panellists agreed they are better suited to niche or specialist managers due to operational complexity. Ares and Apollo are pursuing consolidation, using scale capital to access larger deals—$50 million to $1 billion—beyond the reach of smaller managers.
In terms of sector focus, low- and mid-market sponsor-backed deals remain attractive. Sponsor less transactions were also praised for their alignment and potential for deeper engagement. EBITDA bands of $10–60 million present structural inefficiencies where banks retreat due to regulatory constraints—creating room for funds to step in, often in partnership with banks through syndicated structures.
Partnerships and Liquidity Are Central
Banks are increasingly partnering with private credit funds to manage concentration risk or support sub-$10 million EBITDA companies. Platforms that enable syndication, forward-flow funding, and multi-product relationships are winning mandates. Panellists highlighted that competitive advantage is increasingly tied to relationship depth and advisory capabilities—not just pricing.
CLOs, Real Assets, and New Frontiers
CLOs remain a critical financing source. B+ is the de facto minimum rating, and U.S. CLOs now represent 20% of the market—up from 6%—implying room for Europe to catch up. Churchill Asset Management is among the active buyers.
Real assets and real estate lending were seen as increasingly relevant, particularly in the current high-rate environment where LTVs of 70% and returns in the teens are available. However, the fragmented European regulatory landscape still complicates cross-border lending.
Conclusion: Discipline, Origination, and Scale
There are three Private Credit investor’s priorities for 2025:
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Maintain underwriting discipline,
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Scale origination platforms across regions and asset classes,
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Adopting flexible capital structures, including NAV based financing.
Industry consolidation is expected to accelerate—driven by both strategic M&A and the natural filtering out of underperforming platforms unable to deploy capital effectively. Private Credit is maturing into a vital component of global capital markets, where thoughtful, strategic deployment defines success. For both investors and managers, discipline, innovation, and scalable execution will be key to long-term value creation.
Designed with your success in mind.
Top-quartile private credit funds delivered 11.6% returns, outperforming other alternatives like real estate and nearing infrastructure. This consistent performance is making private credit a core allocation for institutional investors, valued for its income stability and defensive characteristics—especially important amid market volatility.
About APG Capital Markets
GDP Growth - Outlook 2025
APG Capital Markets offers investment management services in private credit, with a focus on high-quality obligors. Since entering Spain in 2023, we have built a strong presence, supporting businesses with tailored funding structures and strategic capital solutions.