The global private credit market, which manages $600 billion is assets, is set to reach the $1 trillion mark by 2020 with its current rate of growth, according to research by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA).
“Private credit has become a permanent feature of the lending landscape and we forecast that the industry will break the $1 trillion ceiling by the end of the decade,” said AIMA CEO Jack Inglis. “Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fueling its expansion into new markets.”
Small- and medium-size businesses (SMEs) dominate the lending market, the ACC said in a recent release. About one-third of total committed capital is being lent to SMEs and the mid-market. The share of lending is about 22% for large businesses. The research suggests that private credit managers are required to be more flexible as covenant and coupon terms have shifted more favorably to the borrower. Focusing on lending standards and robust risk analysis is the most resource-intensive activity among 85% of private credit managers, according to a survey accompanying the research. One-third of the industry’s total assets is available capital, known as “dry powder.” It is at its lowest level in several years. During the period from 2000 to 2008, it was often close to 50%, the ACC said.
Most private credit activity continues to take place in the United States, but managers are looking for new growth opportunities in other markets. Beyond the U.S. and U.K., credit managers mentioned Germany, France and Canada as countries with significant opportunities for lending growth, the ACC said.
– Adam Fusco, associate editor