Key Takeaways
- • Global private credit AUM will surge to $3 trillion by 2028, driven by lower interest rates, declining default risk, and solid economic fundamentals led by the US and Europe, with 2025 positioned as another strong growth year for the asset class.
- • Asset managers are diversifying beyond direct lending into higher-margin segments including asset-based finance (ABF) and investment-grade private credit, as competition has compressed returns in traditional direct lending and banks retreat from riskier credit exposure.
- • Retail private debt AUM is accelerating and now represents less than 20% of total private debt AUM but is growing faster than institutional AUM; managers are launching evergreen funds and private credit ETFs to capture this expanding investor base.
- • Insurance companies are deepening relationships with alternative asset managers to access higher yields, though credit risk and asset-liability mismatch (ALM) risks require close monitoring as these partnerships expand.
- • US regulatory approach toward private credit is expected to shift under the new administration, creating material implications for market structure and capital flows in 2025.
Summary
Moody's 2025 private credit outlook projects accelerating growth across global markets, with assets under management expected to reach $3 trillion by 2028—a trajectory reflecting stronger momentum than recorded in the prior two years. The expansion is underpinned by three structural factors: declining interest rate environments, reduced default risk profiles, and solid economic performance, particularly across the US and Europe. Investor appetite for direct lending remains robust, positioning 2025 as another year of substantial capital deployment into the asset class.
The private credit market is experiencing notable competitive pressure and structural realignment. Direct lending, historically the dominant segment within alternative asset managers' private credit portfolios, faces margin compression as competition intensifies and lofty historical returns normalize. In response, asset managers are actively expanding into adjacent segments, particularly asset-based finance and investment-grade private credit. This diversification strategy reflects both yield-seeking behavior and risk management considerations. Banks are simultaneously retreating from riskier credit exposures—particularly where capital requirements are elevated—creating market gaps that alternative asset managers are filling, especially through ABF partnerships that help banks mitigate regulatory capital charges.
Retail investor access to private credit is emerging as a material secular trend. While retail private debt currently comprises less than 20% of total private debt AUM, this segment is growing at a faster pace than institutional allocations. Alternative asset managers are responding through product innovation, launching evergreen fund structures and, notably, introducing private credit exchange-traded funds—a product category that represents a significant distribution milestone for the asset class. These vehicles are designed to democratize access to institutional-quality private credit investments.
Insurance companies represent another critical constituency reshaping private credit dynamics. Synergies between insurers and alternative asset managers are expanding as insurance balance sheets pursue higher-yielding investments to support liability coverage in a low-rate environment. However, Moody's flagged material risks requiring ongoing monitoring, including credit deterioration and asset-liability mismatch exposures that could emerge if rate environments shift or portfolio quality declines.
Regulatory tailwinds or headwinds will likely materialize under the new US administration, potentially creating material shifts in market structure, capital flows, and competitive dynamics. Asset managers and institutional investors should monitor regulatory developments closely as policy frameworks are reassessed.
The private credit market is experiencing notable competitive pressure and structural realignment. Direct lending, historically the dominant segment within alternative asset managers' private credit portfolios, faces margin compression as competition intensifies and lofty historical returns normalize. In response, asset managers are actively expanding into adjacent segments, particularly asset-based finance and investment-grade private credit. This diversification strategy reflects both yield-seeking behavior and risk management considerations. Banks are simultaneously retreating from riskier credit exposures—particularly where capital requirements are elevated—creating market gaps that alternative asset managers are filling, especially through ABF partnerships that help banks mitigate regulatory capital charges.
Retail investor access to private credit is emerging as a material secular trend. While retail private debt currently comprises less than 20% of total private debt AUM, this segment is growing at a faster pace than institutional allocations. Alternative asset managers are responding through product innovation, launching evergreen fund structures and, notably, introducing private credit exchange-traded funds—a product category that represents a significant distribution milestone for the asset class. These vehicles are designed to democratize access to institutional-quality private credit investments.
Insurance companies represent another critical constituency reshaping private credit dynamics. Synergies between insurers and alternative asset managers are expanding as insurance balance sheets pursue higher-yielding investments to support liability coverage in a low-rate environment. However, Moody's flagged material risks requiring ongoing monitoring, including credit deterioration and asset-liability mismatch exposures that could emerge if rate environments shift or portfolio quality declines.
Regulatory tailwinds or headwinds will likely materialize under the new US administration, potentially creating material shifts in market structure, capital flows, and competitive dynamics. Asset managers and institutional investors should monitor regulatory developments closely as policy frameworks are reassessed.
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