The industry was turbo-charged by the global financial crisis, after which, regulated lenders on both sides of the Atlantic were discouraged from holding leveraged loans. Each subsequent crisis only served to underline the attractiveness of the asset class. From the European sovereign debt crisis, to the U.S. taper tantrum, and to Covid – private credit has remained on a steady upward trajectory, driven by the fundamental supply/demand imbalance for credit in both these regions, increasing capacity of private lenders and the greater efficiency of a private alternative.2 The lack of dependency on ratings agencies is another advantage.

The most recent wave of macro troubles - inflationary pressure and war in Ukraine - have been no exception to the trend. As liquid market activity fell significantly, private credit was able to step up and step in. The combination of locked-up capital and experienced managers, who are able to discern the appropriate credit opportunities, has meant private credit is taking even more share from banks and the liquid markets.

Even as private credit is entering a new phase of “liquid market substitution” the risk/return profile of the asset class in the U.S. and Europe remains attractive. Private credit managers are able generally to extract better terms and pricing in this new environment. We see the benefits of these trends largely accruing to the scaled, established managers in both regions. To be a counterparty to top-tier private equity, a private credit manager needs an established track record of providing finance, as well as the fund sizes to go along with this. Therefore, we see the mid-to-upper end of the private credit market as being the most attractive place to be - it gives access to high-quality investment opportunities with reduced competition, and therefore often better terms.

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