- Private credit has rapidly scaled into a core non-bank funding channel, with global AUM around USD 3.5 trillion and strong recent deployment growth.
- U.S. market size estimates vary widely (about USD 1.5–3 trillion) but forecasts commonly point to USD 3–5 trillion by 2029–2031 as banks retrench and investors seek yield.
- Key vulnerabilities include potentially inflated/opaque “private letter” ratings, liquidity risk in semi-liquid structures, and heavy refinancing needs for junk-rated borrowers.
- Regulators and investors are pushing for better data and disclosure, while changes to leveraged-lending rules could alter bank versus private-credit competition and risk distribution.
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Since 2023, private credit has graduated from niche alternative asset to a central player in global non-bank financing. The ACC’s 2025 industry research estimates global AUM at USD 3.5 trillion, with USD 592.8 billion deployed in 2024—up 78% from 2023. U.S.-centric reports place private credit at about USD 1.52 trillion in 2024, with strong projected growth (CAGR ~9–11%) toward USD 2.9–5 trillion by 2029–2031 under favorable conditions. These forecasts assume rising investor demand, continued bank retreat from riskier credit exposures, and regulatory tailwinds.
Notwithstanding the upside, several risk vectors warrant close scrutiny. One concern is the reliability of credit ratings in the private credit space. The Bank for International Settlements cautions that “private letter ratings” provided by smaller, non-standard rating agencies may be inflated, especially in segments held by U.S. insurers, exacerbating risk of mispricing and potential fire sales under stress.
Another issue is structural liquidity risk. Although many private credit vehicles are closed-end and thus less vulnerable to redemptions, there is a growing presence of semi-liquid and open-ended strategies that may draw in retail capital and expose funds to “runs” in adverse scenarios. Liquidity management tools are being employed, but their effectiveness in severe market dislocations is untested.
Refinancing and default pressures, especially among junk-rated firms, represent a third challenge. Moody’s estimates that U.S. junk-rated entities will face over USD 2 trillion in refinancing needs during 2025–2029, with elevated default risk for the lower-rated subset. Coupled with rising rates and tighter spreads, these stresses could strain private credit portfolios deployed to riskier borrowers.
Regulators are responding. Relaxation of strict leveraged lending rules in U.S. banking—specifically guidelines limiting loans above ~6× earnings—could shift more activity into regulated banking or bring more risk into the banking system through exposures to non-bank lenders. Multilateral bodies like the IMF and OECD are calling for enhanced data collection across non-bank finance, especially in private credit where opacity challenges systemic risk measurement.
Strategic implications: For institutional investors, the opportunity lies in higher yield and diversification, particularly in floating-rate, senior-secured credit with strong underwriting. But success will depend on selectivity, transparency in rating assessments, and careful management of liquidity and refinancing risk. Lenders and fund managers may see more competition as banks regain some freedom post-regulation, potentially compressing spreads or prompting looser underwriting.
Open questions: How durable are the inflated ratings and valuations under tightening cycles or economic downturns? What is the extent of off‐balance sheet interconnectedness between banks, insurers, and private credit funds? Can regulatory reforms meaningfully increase disclosure and risk measurement without stifling capital provision to middle-market firms?
Supporting Notes
- Global private credit market reached USD 3.5 trillion in AUM in 2025; deployment in 2024 was USD 592.8 billion, up 78% over 2023.
- U.S. private credit estimated at USD 1,520.7 billion in 2024; projected to grow to ~USD 2,888.8 billion by 2031 at a CAGR of ~9.6%. Morgan Stanley forecasts USD 5 trillion by 2029.
- About 80% of assets within global private credit are in closed-end fund structures; semi-liquid and open-ended formats are rising but still a smaller share.
- Non-accrual corporate lending rates in global private credit portfolios ~1.8% weighted-average; stress elevated but consistent with historical ranges.
- US junk-rated companies face ~USD 2.02 trillion in refinancing needs from 2025 to 2029; low-rated firms carry higher default risk.
- BIS warns that private letter ratings may overstate creditworthiness by ~2.7 notches compared to traditional assessments, increasing risk under stressed conditions.
- U.S. regulators have relaxed leveraged lending rules formalized since 2013, undermining some regulatory-driven advantages private credit had; banking sector could re-enter riskier lending space.
- IMF head described risks in private credit (non-bank finance) as keeping her awake, particularly due to sector opacity and recent defaults among firms backed by private credit.
- Sector allocations: information technology, healthcare, and industrials are among the largest users of private credit globally; nearly 50% of U.S. private credit proceeds used for general corporate purposes, including working capital and refinancing.