The incredible growth of private credit is inescapable. Preqin data puts global AUM at an all-time high of $1.6 trillion[1], and many observers assert that it could double in the next five years. As the one asset class that thrives on rising interest rates, private credit is considered far from its peak. However, this prompts a few questions:
- What is the driving force behind this growth?
- Where is the most activity in private credit?
- What are the challenges for firms that want to capitalize on it?
SS&C Advent’s Aani Nerlekar, Managing Director, took part in a Hedgeweek webinar, Private Credit: Key Trends, Technology and Future Trajectory, which focused on these questions. Among the key points that emerged from the discussion:
- Bank lending contraction is the biggest driver of the expansion of private credit: Ever since the financial crisis of 2008, bank lending has dropped precipitously, and private credit has filled the demand, especially for middle-market and private companies. Bank’s continuing “undersupply” of credit is expected to fuel further growth in private credit strategies.
- Direct lending accounts for most of the activity: Private credit comes in many forms, but direct lending is the biggest factor in the sector’s growth. Real estate and distressed debt are other areas of significant activity. Opportunities are emerging in investment-grade corporate debt and private placements, and niche areas like specialty financing.
- Private wealth is a growing source of allocations: Family offices and high-net-worth investors are showing an appetite for this largely illiquid asset class, which is well suited to patient capital, investments focused on long-term growth with long time horizons.
- Hedge fund managers want in: Investors seek diversification from hedge funds and traditional asset managers. Managers in turn are looking to private credit to generate higher yields for their clients. In doing so, however, they are running into operational challenges, as private credit has very different accounting, reporting, and data processing requirements from conventional equity-focused funds.
On this last point, the panelists agreed that asset managers looking to diversify into the space must realign their operations quickly and bring private credit expertise into their middle and back offices for the stars to align. Newer managers should consider operational outsourcing to ramp up quickly and take immediate advantage of specialized expertise. From a technology perspective, managers need to move beyond spreadsheets and look at more sophisticated platforms if they hope to scale their private credit activity.
The webinar discussed information from a Hedgeweek Insights Report, “Private Credit: Trends, Technology, and Future Trajectory.” The report is based on a survey of hedge fund managers and interviews with leading private credit participants. It provides expert assessments of the market’s state and direction and concludes that operational performance is critical to success.
Watch the webinar and download the report for a comprehensive analysis on the private credit market today and its future.
To learn more about SS&C Geneva®, an award-winning portfolio and investor accounting platform that fully supports your complex, operational workflows, contact us or request a demo.
[1] (2023, December 12). Preqin 2024 Global Report: Private Equity. Preqin. https://www.preqin.com/insights/global-reports/2024-private-equity
