Private credit has seen significant growth, and as M&A activity has resumed in the back half of 2024 and is expected to continue into 2025, the trend will continue to fuel the private credit market and the need for providers of private credit. The resilient US economy coupled with removal of uncertainty surrounding the US presidential election is likely to further accelerate M&A activity.  Among many others, Goldman Sachs, Blackstone, Blue Owl, Bain, Apollo, and Oaktree have raised significant private credit pools.

In an insightful market commentary from Oaktree Capital, the writers make a compelling case for the growth of private credit beyond direct corporate lending and into asset-backed finance.  That could represent a significant new market for alternative capital providers, with the ABF market estimated to be $5.5 trillion.

Alternative capital providers supplanting traditional lenders is now a familiar tale. Banks, facing heightened capital regulations following the Global Financial Crisis, retrenched from corporate lending, effectively launching direct lending as a mainstream asset class. As traditional lenders face further headwinds, we believe the next chapter in the private credit story is the migration of asset-backed finance (ABF) toward alternative capital providers. While the asset class isn’t new – lending against contractual revenue streams has historically been a cornerstone of bank and insurance company activity – the fundamental transition lies in who now provides the capital. Asset-backed financing may become increasingly unfavorable for banks, and insurers generally stick to the investment grade corner of the ABF market.

https://www.oaktreecapital.com/insights/insight-commentary/market-commentary/performing-credit-quarterly-3q2024-who-are-the-lenders-now