The global private credit market has grown tenfold since 2009, reaching nearly $2 trillion in 2023 and offers diverse financing options for businesses.

Why the booming global private credit market is so important

The global <a href="https://azzet.com/news/private-credit-providers-fill-lending-void-left-by-banks">private credit market</a> has boomed in recent years, particularly in the United States and United Kingdom, and is becoming an increasingly important and interconnected part of the financial system.&nbsp;Private credit has been one of the fastest-growing segments of the financial system over the past 15 years, and according to <a href="https://www.mckinsey.com/industries/private-capital/our-insights/the-next-era-of-private-credit">McKinsey &amp; Company</a> totalled nearly US$2 trillion (A$3.09 trillion) at the end of 2023, which was tenfold since 2009.&nbsp;&nbsp;Many different industries and types of businesses worldwide are considering private credit as a financing option, which gives investors new opportunities to access a diverse asset class.&nbsp;&nbsp;“The narrative about private credit for the past several years has been overwhelmingly positive, though the recent environment might be a little bit different. More broadly, we’ve seen record fundraising, great performance, and a lot of growth in the space,” said Brian Vickery on the <a href="https://www.mckinsey.com/industries/private-capital/our-insights/the-rise-of-private-credit-and-its-future-potential">Deal Volume Podcast</a>.&nbsp;&nbsp;In the <a href="https://www.mckinsey.com/industries/private-capital/our-insights/the-next-era-of-private-credit">U.S. it is expected</a> that an additional $5 trillion to $6 trillion could move into the nonbank ecosystem over the next decade, provided interest rates remain elevated above pandemic-level troughs; yield assets continue to perform in line with their historical range and the current regulatory environment for banks persists.&nbsp;Asset managers, particularly those with a first-mover advantage in private credit, could offer opportunities, via a partnership option to high-net-worth investors.&nbsp;&nbsp;The <a href="https://www.federalreserve.gov/econres/notes/feds-notes/private-credit-characteristics-and-risks-20240223.html">U.S. Federal Reserve</a> said the largest investors, or Limited Partners (LP), in private credit are pension funds, insurance companies, family offices, sovereign wealth funds and high-net worth-individuals. LP’s are attracted to portfolio diversification, low correlation to public markets and relatively high returns.&nbsp;Meanwhile, the <a href="https://www.elibrary.imf.org/display/book/9798400257704/CH002.xml">International Monetary Fund</a> (IMF) said private credit has provided significant economic benefits over the last 30 years, by offering long-term financing to firms too large or risky for banks and too small for public markets.&nbsp;&nbsp;Particularly since the global financial crisis, private credit has grown rapidly and taken market share from bank lending and public markets, amid post-crisis regulatory reforms which raised capital requirements for banks and incentivised banks to hold safer assets.&nbsp;&nbsp;Private credit has emerged as a key lender as banks appear to have become less willing to lend to middle-market firms with riskier profiles in the U.S. and Europe. Private credit assets grew to approximately <a href="https://www.elibrary.imf.org/display/book/9798400257704/CH002.xml">$2.1 trillion globally</a> in combined assets and undeployed capital commitments in 2023. &nbsp;&nbsp;North America remains the key player in private credit, but other regions, including Europe and Asia, are experiencing growth. Private credit now accounts for 7% of credit to nonfinancial corporations in North America. Europe has also been growing, albeit at a smaller share of 1.6% of corporate credit.&nbsp;And Asia is experiencing robust growth, totalling about $93 billion and accounting for about 5% of the global total.&nbsp;&nbsp;&nbsp;The current private credit landscape is mainly dominated by institutional investors, given low liquidity, higher credit risk, and lack of transparency of private credit, with a closed-end fund making up around 81% of the total market. &nbsp;&nbsp;As the market continues to grow, the regulatory framework in the industry will also evolve to mitigate any potential risks to financial stability.&nbsp;&nbsp;Disclaimer: This article provides general information and does not constitute financial advice. Always consult a professional advisor before making investment decisions.

Why the global private credit market is so important

News

Discover opportunities from Azzet™ members

Featured investments

Read popular news stories from Azzet’s business editors

Trending news

Browse upcoming business & networking events near you

Upcoming events

Discover helpful insights from verified executives

Featured insights

Discover these popular investment opportunities

Popular listings

Why the global private credit market is so important | Azzet™ - Where decisions are made