The private credit market could expand by double digits annually in the medium term to circa $3tn, replacing 11% of the broad fixed income market, according to new survey of 140 investors, fund managers and bankers by Bloomberg Intelligence.
The results reveal that most growth is projected to be in North America, followed by Europe.
According to the survey, asset managers may provide the greatest support to private credit, chosen by 32% of respondents as the biggest allocators going forward, with sovereign wealth funds next, at 23%. The remainder is a split between pensions, insurers and retail. Only 17% of respondents meanwhile, identified insurance investors as leading contributors to private credit.
In addition, over 70% of lenders and half of investors and fund managers expect deployment to accelerate modestly over the next 12 months, consistent with an improving deal environment as interest rates decline, while more than 20% of fund managers and investors expect a significant increase.
Most respondents also see private lending holding a spread premium of 100-300 bps over public markets, with 44% pointing to a 200-bp premium. Most of the spread compensates for the lack of liquidity for private instruments, but it also indicates the benefits to borrowers of faster and more certain execution of private transactions. Banks see a wider range of private spread outcomes in their lending, thought it is still clustered around 200 bps. Bank lenders have the largest share of groups surveyed that see excess spread at less than 100 bps.
About 45% of respondents expect private credit fee rates to remain stable, and more than 20% each see either a small decline or increase. No fund managers, and just 4% of investors, expect significant declines.
Paul Gulberg, Senior Industry Analyst – Banks at Bloomberg Intelligence, commented: “Fees at the largest peers – including Apollo, Ares, Blackstone, KKR, Carlyle, Brookfield and TPG – could prove particularly resilient, as just 3.5% of private debt fundraising has come from emerging managers this year, down from 15% in 2021. As the asset class expands and shifts further into mainstream fixed income, more attractive fee products become possible.”