Key Takeaways
- • European private credit assets under management have grown substantially from $93 billion in 2013 to $525 billion by 2025, with projections for the global market to reach $3.5 trillion by 2028, reflecting structural demand as traditional banking capacity contracts.
- • Portfolio selectivity across company size and sector has become critical; lending to larger, higher-quality companies in less cyclical sectors provided material insulation against defaults during recent market stress, while smaller and more cyclical borrowers faced elevated credit events.
- • Credit event rates are expected to remain elevated relative to the prior decade due to macroeconomic volatility and sponsor incentives, despite forecasts of moderate but constructive European real GDP growth of 1.0-1.3% and US growth of 2.1% annually over the next three years.
- • The refinancing market has supported borrowers in managing financing costs as rates rose, but capital allocation is expected to shift from refinancing toward financing new M&A transactions as the acquisition environment recovers.
- • Private credit's freedom from public benchmark constraints allows managers to underweight or avoid underperforming market segments—a structural advantage that becomes increasingly valuable in differentiated macroeconomic environments where company trajectories diverge based on inflation sensitivity and secular trend exposure.
Summary
The European private credit market has evolved into a material asset class following over a decade of sustained growth, with assets under management expanding from $93 billion in 2013 to $525 billion by 2025. This expansion reflects a secular shift in financing supply, driven by reduced lending capacity from traditional banking institutions and rising demand from institutional investors seeking yield and alternative risk-adjusted returns. Market projections suggest continued growth, with the global private credit market expected to reach $3.5 trillion by 2028.
Recent market dynamics have clarified the importance of disciplined underwriting and portfolio construction. Analysis of credit events over the past decade reveals that selective exposure across both borrower quality and sector has materially influenced outcomes. Specifically, lending to larger, higher-quality companies operating in less cyclical sectors provided meaningful insulation against defaults during periods of macroeconomic stress and rising interest rates. Conversely, smaller borrowers and those in cyclically sensitive sectors experienced elevated default rates. This experience suggests that the benign macroeconomic environment of the prior decade may have obscured credit selection dynamics that subsequently became apparent as macro conditions tightened and geopolitical risks increased.
Goldman Sachs economists forecast European real GDP growth of 1.0-1.3% annually over the next three years, with inflation tracking at 1.8-2%, while US growth is expected to moderate to 2.1% annually after a strong 2026. While this backdrop remains constructive, individual company performance is expected to diverge more sharply based on inflation sensitivity and exposure to secular disruption themes. Consequently, credit event rates are anticipated to remain elevated relative to the prior decade's experience, necessitating heightened selectivity in underwriting.
The refinancing market has provided crucial support to borrowers managing the transition to higher rate environments, allowing extension of maturities and management of financing costs. However, as capital inflows remain robust and the M&A environment shows signs of recovery, capital allocation is expected to shift toward financing new transactions rather than refinancing existing positions. This dynamic will require private credit managers to maintain careful sector and size-based selectivity to avoid the cyclical exposures that drove underperformance during recent stress periods. A key structural advantage of private credit—the absence of public benchmark constraints—enables managers to underweight or exit unfavorable market segments, a capability that becomes increasingly valuable in divergent macro environments.
Recent market dynamics have clarified the importance of disciplined underwriting and portfolio construction. Analysis of credit events over the past decade reveals that selective exposure across both borrower quality and sector has materially influenced outcomes. Specifically, lending to larger, higher-quality companies operating in less cyclical sectors provided meaningful insulation against defaults during periods of macroeconomic stress and rising interest rates. Conversely, smaller borrowers and those in cyclically sensitive sectors experienced elevated default rates. This experience suggests that the benign macroeconomic environment of the prior decade may have obscured credit selection dynamics that subsequently became apparent as macro conditions tightened and geopolitical risks increased.
Goldman Sachs economists forecast European real GDP growth of 1.0-1.3% annually over the next three years, with inflation tracking at 1.8-2%, while US growth is expected to moderate to 2.1% annually after a strong 2026. While this backdrop remains constructive, individual company performance is expected to diverge more sharply based on inflation sensitivity and exposure to secular disruption themes. Consequently, credit event rates are anticipated to remain elevated relative to the prior decade's experience, necessitating heightened selectivity in underwriting.
The refinancing market has provided crucial support to borrowers managing the transition to higher rate environments, allowing extension of maturities and management of financing costs. However, as capital inflows remain robust and the M&A environment shows signs of recovery, capital allocation is expected to shift toward financing new transactions rather than refinancing existing positions. This dynamic will require private credit managers to maintain careful sector and size-based selectivity to avoid the cyclical exposures that drove underperformance during recent stress periods. A key structural advantage of private credit—the absence of public benchmark constraints—enables managers to underweight or exit unfavorable market segments, a capability that becomes increasingly valuable in divergent macro environments.
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