Private credit has grown tremendously over the last decade and is today a $2 trillion market – about the size of both the high yield and the broadly syndicated loan markets. Much of that growth has been in the segment of private credit called “direct lending” which are senior secured corporate loans made by private funds and other non-bank entities (e.g., business development companies) to mid-sized businesses. The direct lending segment has expanded as traditional banks have reduced their lending due to regulatory constraints.
Private credit is poised for continued growth as managers and investors look to other segments of the market. One such segment that has garnered a lot of attention recently is private asset-based finance (“ABF”). ABF captures a broad range of lending to consumers, companies, and others which includes typical consumer loans such as residential mortgages, automobile loans, credit card, and student loans, as well as commercial finance transactions such as equipment leasing, aircraft leasing, and rail cars, and cashflow based transactions ranging from royalties on pharmaceuticals and music to sports broadcasting rights. The private global ABF market is estimated by the consulting firm Oliver Wyman to be $5.5 trillion. Like direct lending, the private market is expected to grow as banks, which control approximately 54% of these loans, retrench.
Many large U.S. alternative asset managers are building dedicated teams to meet the expected growth of private asset-based finance. While it is likely that a major focus of these firms will be to create institutional products, they are also developing products for the retail channel. For example, at the end of August, Blackstone registered a new interval fund with the U.S. Securities and Exchange Commission (“SEC”) that will invest across a wide range of private credit strategies, including asset-based credit. Whether through direct lending or asset-based credit, private credit markets are becoming an essential component of investor portfolios, offering growth potential beyond traditional avenues.
Steve was formerly the Chief Investment Officer and Head of Private Markets at Manulife Investment Management. In this role, he was responsible for leading global investment teams across a wide range of asset classes, including private equity and credit, real estate, infrastructure, timber, and agriculture. Steve has served as a director of many public and private companies during his career, including two of Manulife’s U.S. SEC-registered investment advisors.
Important Notice: Private Markets Navigator does not provide investment advice, and the information should not be construed as such. Investing in private asset funds is risky, with potential for total loss and long-term liquidity restrictions. Read our full dislaimer.