A Market Matures: Navigating the Rise of Direct Lending

Private credit markets have surpassed $3 trillion in assets globally, with direct lending funds seeing the strongest growth, in a shift that is having profound consequences for traditional banks and the wider economy.

But as competition and margin pressures mount, direct lenders now must navigate lower absolute returns, find suitable liquidity parameters for a growing base of investors, and compete more creatively for deals across more industries. In our joint white paper with Carne Group, we explore these themes, and how trusted service providers can play a role.

Key Takeaways

• Private credit markets, led by direct lending, surpassed the $3 trillion mark in 2024 by some estimates. Private debt assets had already doubled from 2019 to 2023 and Preqin forecasts that they will grow at a compound annual growth rate of 9.88% from 2023 to 2029.
• Margin pressures are furthering the move toward outsourcing. Some 51% of managers with proprietary management companies said they would outsource more functions over the next two years.
• As an estimated $1 trillion pours into global private markets from retail investors and wealth channels, a key focus will be ensuring adequate liquidity. This could mean additional education, more timely asset valuations and new fund structures.
• Banks are claiming an uneven playing field, given direct lenders’ lower disclosures and capital requirements. As banks retreat, direct lenders are dominating fund financing and opportunities are arising in asset-backed financing and risk-transfer transactions.
• Healthcare, technology and infrastructure are providing fertile ground to compete. Smaller and midsized direct lending funds are leveraging their agility, and deep understanding of challenges in these industries, to grow in Silicon Valley and other technology corridors.
• Since rates were cut, absolute returns will likely dip from current levels. Lower rates could also spur more refinancings of existing debt facilities.

Special thanks to Treabhor Mac Eochaidh, global head of private debt, MUFG Investor Services and Des Fullham, Chief Regulatory & Client Solutions Officer, Carne Group, who provided extensive insight and guidance for this white paper.