Private Credit Market Insights

We spent the last 3 months researching how PE firms create value 🌱 The result: “The Private Equity Value Creation Report” — one of the most in-depth studies on the topic, based on the data from over 10,000 PE entries and exits globally. 𝟳 𝗸𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: 1️⃣ Revenue growth is the largest driver of PE value creation On average, it contributes to 54% of value creation. Recently, revenue growth has become an even more critical driver of success (as multiples have come down), contributing to ~65-70% of value creation in the last 2 years. 2️⃣ Margin expansion plays a smaller role at 15% Margin expansion is most impactful when PE firms target operationally challenged businesses rather than already-efficient businesses. 78% of deals with negative EBITDA margins achieved margin expansion (median +1250bps), while businesses with high EBITDA margins (>30%) typically saw margin contraction. 3️⃣ Multiple expansion contributes significantly at 32% For the top quartile deals, its contribution is even higher at 40%.  By sector, TMT, Science & Health, and Services see the largest multiple expansion. Consumer and Industrials see the least. By size, multiple expansion is the highest for smaller deals under $100M EV. 4️⃣ Growth amplifies all other PE value creation drivers Growing companies benefit from operating leverage and are more likely to achieve margin expansion. 58% of growing firms expand margins compared to 44% of those with negative growth. Higher-growth companies also typically command 30–50% higher multiples at exit. 5️⃣ Top and bottom-performing deals are held the longest Investors hold onto the best-performing assets for greater upside but also hold the worst, trying to fix the business. Assets held in the 3-6 year range tend to cluster around more predictable, moderate returns. 6️⃣ Buy-and-build is central to PE value creation When done right, buy-and-build bolsters all three value creation drivers: revenue growth, margin expansion, and multiple expansion. Buy-and-build works at any size, but the uplift is strongest in small platforms. The multiple arbitrage strategy still works with add-ons trading at a 20% discount to platforms. 7️⃣ Larger deals drive more margin expansion Large businesses ($1bn+ EV) and public-to-private deals, on average, deliver more margin expansion. Smaller businesses, on the other hand, rely more on growth and multiple expansion to drive returns. Given the smaller size, returns on average, are also higher for family-to-sponsor deals. _______ 𝗙𝘂𝗹𝗹 𝗥𝗲𝗽𝗼𝗿𝘁 Don’t miss out on insights: 💡 By Sector 💡 By Deal Type and Size 💡 MOICs and Loss rates + 5 case studies and 43 charts. Get it here ➡️ https://lnkd.in/d9Z3kubU (E-mail required) #ValueCreation #Growth #PrivateEquity

The headline that caught my eye this week was "Moody's, MSCI to Offer Private-Credit Risk Assessments." Here's my take: This partnership represents a meaningful evolution in the maturing private credit landscape. While the market has grown (depending on how you define it) to an estimated $2.5 trillion, the analytical frameworks haven't kept pace with its increasing complexity and scale. This gap between market size and transparency tools has been particularly noticeable during periods of economic uncertainty. What's interesting about this collaboration is how it addresses a fundamental tension in private markets. The very opacity that creates alpha opportunities for sophisticated investors also limits broader adoption. By developing standardized risk assessments that weigh factors like leverage, profitability, and borrower size, Moody's and MSCI are effectively creating a common language for evaluating credit risk. The collaboration also highlights a wider trend: the growing institutionalization of alternative investments. As private markets scale, they inevitably adopt more of the analytical infrastructure that's long been standard in public markets. This represents both a challenge and opportunity for asset managers – greater transparency typically narrows information advantages but also expands the total investor base. The line between "alternative" and "traditional" investing continues to blur – mostly through the gradual institutionalization of private markets. https://lnkd.in/ezv67EWN

Our latest Private Markets Quarterly unpacks the outlook across asset classes: Private equity: Geopolitical and AI-related disruptions could temper the recovery in M&A/exits, but attractive valuations, resilient earnings, and a record USD 1.1 trillion of US #privateequity dry powder support the medium-term outlook. Private credit: Direct lending issuance remains resilient as activity consolidates into fewer but larger transactions. #Privatecredit spreads are normalizing, while competition has led to lower origination fees and a narrower financing environment. Manager selection remains key given a more balanced risk-reward outlook. Infrastructure: Secular tailwinds including digitalization, power generation, and grid modernization should support demand. Core and core plus #infrastructure can provide an attractive source of income beyond private credit. Real estate: Greater clarity on cost of capital, an improving transaction market, abundant access to multiple sources of capital, and manageable defaults should position the US commercial #realestate sector to continue climbing the wall of worry.   Read the full report below from Jennifer Liu, Daniel Scansaroli, Ph.D., Christopher Buckley, CAIA®, and Shaista Macan-Markar, with contributions from Leslie Falconio, Jonathan Woloshin, CFA, and John Murtagh. 𝘕𝘰𝘵𝘦: 𝘐𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘪𝘯 𝘢𝘭𝘵𝘦𝘳𝘯𝘢𝘵𝘪𝘷𝘦𝘴 𝘳𝘦𝘲𝘶𝘪𝘳𝘦𝘴 𝘢𝘯 𝘶𝘯𝘥𝘦𝘳𝘴𝘵𝘢𝘯𝘥𝘪𝘯𝘨 𝘰𝘧 𝘵𝘩𝘦 𝘷𝘢𝘳𝘪𝘰𝘶𝘴 𝘥𝘳𝘢𝘸𝘣𝘢𝘤𝘬𝘴 𝘢𝘯𝘥 𝘳𝘪𝘴𝘬𝘴, 𝘪𝘯𝘤𝘭𝘶𝘥𝘪𝘯𝘨 𝘪𝘭𝘭𝘪𝘲𝘶𝘪𝘥𝘪𝘵𝘺, 𝘱𝘰𝘵𝘦𝘯𝘵𝘪𝘢𝘭𝘭𝘺 𝘭𝘰𝘯𝘨 𝘭𝘰𝘤𝘬𝘶𝘱 𝘱𝘦𝘳𝘪𝘰𝘥𝘴, 𝘢𝘯𝘥 𝘭𝘪𝘮𝘪𝘵𝘦𝘥 𝘥𝘪𝘴𝘤𝘭𝘰𝘴𝘶𝘳𝘦𝘴. 

Private credit fundraising rose 40% last year in the UK and continental Europe - and more to come in 2026. The interesting question is where that capital goes next. In our new report, we explore how private credit 2.0 is playing out in Europe. Globally, asset-based financing has been the largest source of private credit industry growth recently: our estimates are that assets under management at leading firms were up 38% in the five quarters ending in the third quarter of 2025, roughly twice as much as other categories of private credit. Our estimates suggest asset-based finance is a €4.2 trillion category in Europe today, rivaling the US. Yet non-banks hold just 13% of the total, less than half of the 34% share in the US. Europe looks set for several trillion euros of spending on digital and energy infrastructure. Meeting that demand will require funding from every corner of the financial system: public markets, banks, governments, and private capital - and we see opportunities for private credit to gain share. There has been a flurry of bank and private credit origination partnerships, particularly for infrastructure, reflecting the bank-led system and Europe's many distinct, country-level markets. The report covers: •⁠ ⁠the sub-sectors growing the fastest •⁠ ⁠the shifting regulations that will shape it •⁠ ⁠the emerging bank and non-bank partnerships And what this might mean - for banks, investors, and infrastructure players. Link to the report is in the comments Great to work with Laura Watkin, Dylan Walsh, Magnus Burkl, CFA, Ryan Lancaster and colleagues on this. Oliver Wyman #PrivateCredit #Finance #OliverWyman

Private credit typically refers to non-bank, non-publicly traded debt financing.   The private credit market in the U.S. has grown substantially over the past two decades and has become a major source of financing. Private credit in the U.S. has grown exponentially, from roughly $46 billion in 2000 to about $1.7 trillion currently. The initial trigger was the tighter regulatory regime for banks post the Global Financial Crisis but that tailwind gained momentum from the growth of private equity which leveraged debt financing for acquisitions, investors chasing yield in a low-rate world and greater investor democratisation. Retail investors in the U.S in fact now access private credit with as little as $1,000, leading to growing retail flows into such funds. Private credit funds in the U.S and Europe have become large and mainstream and provide credit to a complete range of corporate borrowers, from large to small.   The Asian private credit market is still relatively small with less than 5% of global market share. The corollary of this is that bank led credit is about a third to half of the total credit supply in the US and Europe but is over 70% in Asia, including India. Whenever an asset class grows this rapidly there will be issues that would arise. The main issues around the rapid growth of private credit in the U.S centre around the illiquidity of the investments, relative opacity and the systemic risk, since banks often finance these non-bank credit providers.    The Indian private credit market has also grown rapidly. The categories of providers of private credit in India include NBFCs, Domestic AIFs, Venture Debt funds, Foreign private credit funds and, more recently, Family Offices and UHNIs. Insurance companies and pension funds, which are large players in the U.S, are limited participants here because of the regulatory guidelines. This asset class is seeing growing traction on the demand side. The drivers of demand growth are the growth of the space banks and NBFCs can’t or are not keen to finance, underdeveloped bond markets, the ability of private credit providers to create customised solutions for borrowers, growth of private equity led transactions and increasing investor appetite for higher yielding fixed income instruments, especially after the change in taxation on fixed income funds. As a result, we have seen an increase in activity on the supply side too, with more AIFs coming into existence.   As India grows, the demand for credit will have to be met by a wider range of providers and the opportunity for private credit funds is therefore going to be large and attractive. With growth comes greater complexity and issues like liquidity, top quality governance and a strong focus on borrower quality will be key as private credit funds strive to become part of mainstream portfolios and a large asset class by itself.

All hunky-dori in private credit land? 🫣 If you are also wondering whether the years of zero 🍩 rates may have created a bit of a private credit monster 👹 or at least led to significant misallocation of capital into the sector, here’s an interesting take from the global long/short equity portfolio managers at Lancaster Investment Management (James Hanbury & Jamie Grimston, ex-Odey/Brook): "One reason the economy may turn out to be weaker than expected is the significantly greater amount of private credit in the system – where opacity makes it harder for central banks and the market to track the impact of higher rates. Since 2️⃣0️⃣0️⃣6️⃣ private credit has grown 1️⃣3️⃣-fold and, according to the CEO of Apollo Global Management, Inc. only 20% of new debt in 🇺🇸 goes through the banking system, which is one of the side-effects of regulations brought in post the GFC. Some of the features of private credit, in its broader definition, are being covenant-light and having floating rate debt. Companies accessing private credit markets effectively only ’default’ when they actually run out of cash, giving less warning compared to traditional debt with covenants. We feel there is not enough scrutiny of how these companies are handling borrowing costs that, according to Refinitiv and KBW Research, have gone from c.6️⃣% to c.1️⃣2️⃣% over the last two years. The covenant-light profile of private credit is one of the reasons that default rates are still low in this asset class. H1 2024 should be a good indicator as it will see the first major wave of refinancings in the private credit and leveraged loans market start to bite. Certain US Senators share our concerns: '🗣️Unlike the traditional banking industry, the private credit market is subject to minimal, indirect regulatory oversight. The lack of transparency in this market obscures its true size and risk. Troublingly, there is insufficient insight into the private credit market’s key features, including loan terms, lenders’ funding structures, and borrowers’ financial health.' Letter dated 29th November 2023 to the Federal reserve from Sherrod Brown, Chairman of the Senate Committee on Banking, Housing and Urban Affairs. One of the ways we try to track the underlying health of the private credit market is by following the Business Development Companies, speciality finance companies that invest in private credit, where it is interesting how much their portfolio interest coverage ratios have fallen. FS KKR's portfolio interest coverage ratio in Exhibit 2 below is a prime example, down from 2.6 x in Q1-22 to 1.5 x in Q3-23. 1.5 x coverage when taken against EBITDA implies around 1x cash cover." ❓Do you feel those worries about the health of the private credit market are spot-on or exaggerated? (+++Opinions are my own. Not investment advice. Do your own research.+++) #markets #investing #money #wealthmanagement #privatecredit Enjoyed this post? 👍 Like 💬 Comment 💌 Share 🔔 Subscribe

I joined Bloomberg this week to talk about investing during the Iran conflict and some of the opportunities we see in private markets right now. Here are the takeaways: 📈 Inflation is a major concern. We see inflation hitting 4% later this summer if the conflict continues and oil prices remain at $90–100+/barrel. Look at investments with built-in inflation hedges — like real estate and infrastructure. 🏢 Those rent increases you see… the utility bill hikes… they're feeding directly into investment income for real estate and infrastructure strategies. 📉 It took until April for equities to get back into the green. High valuations in public markets mean we'll continue to see periods of volatility even as indices hit new highs. Look at private equity for alternative sources of return. 🚢 Transportation has been a standout in Q1 across both public and private markets. Transportation acts as a geopolitical hedge — when oil and gas can't come from the Gulf, it has to come from further afield. More nautical miles traveled means more revenue for ship owners. 💳 Private credit — don't let the headlines fool you. Sentiment is at a low point, but fundamentals aren't showing problems with credit quality. Areas of the market like secondaries look attractive right now. Check out the clip in the link below 👇 #Privatecredit #Infrastructure #RealEstate #Inflation #PrivateEquity #Transportation #Geopolitics

In recent weeks, my colleagues Henry McVey and Aidan Corcoran traveled across Europe, meeting with business leaders, macro experts, and policymakers. Their latest report - 𝘛𝘩𝘰𝘶𝘨𝘩𝘵𝘴 𝘧𝘳𝘰𝘮 𝘵𝘩𝘦 𝘙𝘰𝘢𝘥: 𝘌𝘶𝘳𝘰𝘱𝘦 𝘢𝘯𝘥 𝘵𝘩𝘦 𝘔𝘪𝘥𝘥𝘭𝘦 𝘌𝘢𝘴𝘵 - captures a pivotal moment for Europe’s economic trajectory, with significant implications for long-term investors.   𝐄𝐮𝐫𝐨𝐩𝐞 𝐢𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐢𝐧 𝐢𝐭𝐬𝐞𝐥𝐟 𝐚𝐠𝐚𝐢𝐧. A wave of public investment is reshaping the region, particularly in infrastructure, energy, and advanced technology. These efforts signal a shift from fiscal restraint to strategic investment, creating a strong foundation for growth. 𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐢𝐧𝐬𝐭𝐫𝐮𝐦𝐞𝐧𝐭𝐚𝐥. As governments work to modernize transportation, energy systems, and digital infrastructure, the opportunity for private investment has never been greater. Policies are increasingly designed to crowd in rather than crowd out private capital, unlocking opportunities to scale ambitious projects. 𝐌𝐨𝐦𝐞𝐧𝐭𝐮𝐦 𝐜𝐨𝐧𝐭𝐢𝐧𝐮𝐞𝐬 𝐭𝐨 𝐛𝐮𝐢𝐥𝐝. Europe’s economic outlook is improving, with upgraded growth forecasts, renewed focus on competitiveness and productivity, and an investment landscape that is more attractive than it has been in years. 𝐁𝐞𝐲𝐨𝐧𝐝 𝐄𝐮𝐫𝐨𝐩𝐞, 𝐭𝐡𝐞 𝐌𝐢𝐝𝐝𝐥𝐞 𝐄𝐚𝐬𝐭 𝐢𝐬 𝐚𝐥𝐬𝐨 𝐬𝐞𝐞𝐢𝐧𝐠 𝐬𝐭𝐫𝐨𝐧𝐠 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐨𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬. As the region continues to diversify and grow, there is a compelling case for private capital in infrastructure and private lending, areas where long-term investors can play a crucial role.   At KKR, we have been investing in Europe for over 25 years, and today, more than ever, we see compelling opportunities across asset classes. The transformation underway is significant — and private capital has a key role to play.   Read the full report here: https://go.kkr.com/4iEjJ4e  

Covenant-lite is entering private credit — but don’t confuse that with lenders losing control. Proskauer’s latest data (450+ deals; $124 Billion) shows covenant-lite deals rising sharply to 21% in 2025 vs. just 4% in 2023. On the surface, that looks like private credit drifting toward the syndicated loan playbook. In reality, the shift is far more measured. Even when maintenance covenants are loosened, private credit lenders are holding onto structural protections that matter when credits weaken — tighter additional debt limits, stronger liability management safeguards, and springing covenants for revolving credit facilities that allow lenders to step in if a borrower's liquidity tightens. The cov-lite trend is also concentrated where borrowers have leverage. > 91% of these deals involved companies with $50Mn+ EBITDA, although strong sponsor relationships are increasingly pushing flexibility into slightly smaller credits as well ($30Mn+ EBITDA-level borrowers) Beyond covenants, the broader data reflects a market quietly tilting toward borrowers — but not dramatically: • Leverage: Edging up to 5.1x, with about 1.2x incremental debt capacity post-close • Flexibility: Larger incremental debt baskets, with 81% of deals allowing meaningful add-on debt without conditions • Equity: Headline 50%+ equity checks have dropped, but most deals simply shifted just below that level (45-49% equity capitalization) • Pricing: Margins have tightened to ~5.6%, highlighting intense competition for quality credits At the same time, slower exits are shaping sponsor behaviour. > Dividend recapitalizations have doubled to 10% of deals, and PIK toggles appear more often — practical tools to generate liquidity for PE sponsors while holding assets longer. Sector preferences remained consistent, with Healthcare, Manufacturing, Software, and Business Services dominating deal flow — a reminder that private credit still prioritises visibility of cash flows over cyclical upside. So what does all of this really mean? Private credit is evolving. Borrowers are gaining flexibility, but lenders are embedding protections in more nuanced ways — through structure and loan documentation rather than traditional maintenance covenants. The real test of whether these structural protections are sufficient should come during the next stress cycle. Krishank Parekh | LinkedIn Source: PitchBook data