In 2012 private debt Assets under Management were US$370 billion. At the end of 2022, that figure had risen to US$1.4 trillion and is expected to hit US$3 trillion in the next three years. The asset class has been on an extraordinary growth trajectory since the Global Financial Crisis (GFC). Regulatory legislation, such as the roll outs of Basel 3 and IFRS 9, has been the underlying driver. Balance sheet efficiency has become the primary focus for banks across the globe who have retrenched from specific lending areas as a result, exiting activities or geographies deemed subscale or non-core.

Regulation is important, but what impact have you seen technology play within private credit?

When we’re thinking about what motivates banks to sell loans it would be naïve to assume that they only consider capital efficiency and profitability. Whilst RWA and ROE are clearly important metrics, it can often be overlooked that technology is also a big factor.

European banks spend huge sums of money on technology. As one would expect, the larger the bank, the larger the spend. For instance, UniCredit and BBVA expect to spend between €1-2 billion every year on IT. If anything, the relative cost is far higher for smaller institutions and, critically, much of this spend is likely directed towards new lending, with legacy systems often falling further down the priority list; in turn, precipitating asset disposals in preference to investment in replacement software.

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