Nonetheless, Baxter Wasson and Rodrigo Trelles, co-heads of O’Connor Capital Solutions, see compelling opportunities for making smaller loans in the non-sponsor/smaller sponsor-backed part of the market.

As banks steadily recede from the loan market, private credit funds have proliferated both in number and scale to cater for unmet borrowing demand. However, amid the deluge of capital flooding into private credit, some investors are scrutinizing whether key supply-demand dynamics are sustainable.

Citing Preqin data, a recent article Number of global private debt funds hits new record by Benefits and Pension Monitor stated “There is now a record number of private debt funds, growing by 19% from 2022 to 1,080 at the end of Q3 2023, with over 40% increase in the capital being targeted by new funds.” In terms of scale, Preqin’s Future of Alternatives 2028 report forecasts that private credit will nearly double in size and reach USD 2.8 trillion by the end of 2028. And while data from Preqin implies private debt fundraising last year was relatively flat when compared to 2022, this could represent a mere bump in the road as levels are still quite strong relative to other alternative asset classes.

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