How Private Credit Became a Trillion Dollar Market

Steadfast Equity
Jun 12
13 min read

Updated: Jun 17

Private credit has grown into a $1.5 trillion market, offering higher yields, flexibility, and fast funding options for businesses that banks often can't serve. Here's why it matters:

What is Private Credit? Non-bank lenders provide tailored loans directly to companies, focusing on asset value and returns rather than strict bank criteria.
Why It Grew Fast: Regulatory changes post-2008 limited bank lending, creating opportunities for private credit to fill the gap.
Investor Appeal: Higher returns (10.15% yields on average), floating rates, and low correlation with public markets attract investors.
Key Stats: The market grew from $1 trillion in 2020 to $1.5 trillion by early 2024, with projections to hit $2.6 trillion by 2029.
Who Benefits? Mid-sized companies, private equity-backed firms, and industries like tech and real estate rely on private credit for fast, customized funding.

Private credit is reshaping corporate financing by offering speed, customization, and access to capital where traditional banks fall short.

What Drove Private Credit's Expansion

Investor Demand for Higher-Yield Fixed-Income Options

With traditional bonds offering lower returns, investors have turned to private credit for higher yields. Currently, private credit yields stand at 10.15%, offering a 226 basis point premium over B-rated loans - double the average since January 2021. What makes it even more appealing is its floating rate, which adjusts upward during inflation, helping to maintain purchasing power.

Another major attraction is the diversification it brings to portfolios. According to Federal Reserve analysis, private debt appeals to investors because of its low correlation with public markets and its ability to deliver high returns. Insurance companies, in particular, have become key players, using private credit to align long-term liabilities with steady, contractual income. Meanwhile, private credit ETFs have made it easier for a wider range of investors to access this asset class.

This growing investor appetite has paved the way for regulatory shifts that have further expanded opportunities in the private credit market.

How Banking Regulations Created New Opportunities

Regulatory changes following the 2008 financial crisis reshaped the lending landscape, creating a prime opportunity for private credit to step in. Banking reforms, such as the Dodd-Frank Act, imposed stricter capital requirements on traditional banks, limiting their ability to lend to riskier borrowers. As banks consolidated and scaled back lending to stabilize their balance sheets, private credit firms filled the gap.

The shift is evident: bank lending as a share of corporate borrowing dropped from 44% in 2020 to 35% in 2023. Private credit firms capitalized on this retreat by offering loans to businesses that banks could no longer serve.

"In the wake of a bank retreat, demand for capital has outstripped supply, reducing competition in many markets and creating new opportunities and a potentially stronger position for private credit investors." – PIMCO

Unlike banks, private credit firms operate under fewer regulations, allowing them to offer more flexible and tailored lending solutions. This flexibility enables them to act quickly and structure deals in ways that heavily regulated banks simply cannot. The regulatory tightening that followed the Global Financial Crisis cleared the way for private credit to rise, especially in the non-investment-grade lending space.

The scale of the opportunity is staggering: as of September 2024, private debt's unrealized value and dry powder reached $1.05 trillion, marking a 94% increase since the end of 2019. As Apollo CEO Mark Rowan put it, "Every time you move something out of a banking system, you de-lever the system."

These regulatory shifts not only restricted traditional bank lending but also directly contributed to private credit's transformation into a trillion-dollar market.

Speed and Customization in Financing

Private credit has also carved out its space by offering speed and tailored solutions - two key advantages over traditional banks. While banks may take weeks or even months to finalize loans, private credit lenders can often deliver funds within days. This speed is a game-changer in competitive deal-making, where timing can make all the difference.

Beyond speed, private credit lenders excel at customizing financing to meet the specific needs of borrowers. Instead of offering generic loan products, they provide tailored terms, strategic advice, and even industry connections, fostering a more collaborative relationship.

"The key benefits private credit can offer - e.g., customization, speed, and certainty of execution - have become an integral part of the menu of credit solutions available to large borrowers." – James Vanek, Partner, Co-Head of Global Performing Credit, Apollo

This level of service comes at a premium. Borrowers often pay up to 400 basis points more for private credit financing compared to publicly funded loans.

The combination of regulatory changes, a growing demand for higher yields, and borrowers' preference for fast, customized funding has driven the rapid expansion of private credit. These trends signal a lasting shift in how corporate financing operates today.

Key Players and Industries in Private Credit

Top Private Credit Managers and Funds

The U.S. continues to dominate the private credit landscape, with leading firms driving growth by offering direct loans to private equity-backed companies. Among the top players, Apollo Global Management, Ares Management Corporation, and Goldman Sachs Asset Management stand out, managing $480 billion, $104.48 billion in commitments, and $130 billion in assets, respectively.

Apollo’s CEO, Marc Rowan, has made private credit a central focus of the firm's strategy to double its business size by the end of the decade. Similarly, James Reynolds, co-head of private credit at Goldman Sachs Asset Management, highlights private credit's resilience against inflation, as most loans are tied to floating rates.

Globally, the top 20 private credit fund managers control over one-third of the available dry powder, holding $138.14 billion in uncommitted capital - 36% of the global total of $385.28 billion. This concentration of capital reflects a growing preference among investors for established managers with proven track records.

These major players underscore the critical role private credit plays across various sectors, showcasing its adaptability to meet diverse financial needs.

Industries That Rely on Private Credit

Private credit has become a lifeline for industries that face hurdles in securing traditional bank loans or issuing corporate bonds. It is especially vital for technology firms and growth-stage companies, including startups and small- to medium-sized enterprises, which often lack extensive credit histories. These businesses turn to private credit for fast, flexible funding options.

Private equity-backed firms are another key beneficiary, as their complex financial structures often fall outside the scope of traditional lending. Similarly, mid-market companies rely on private credit to fuel expansion, acquisitions, and refinancing efforts. These firms typically find themselves too large for small business loans yet too intricate for public bond markets.

In essence, private credit provides these industries with quick access to capital, bridging gaps where traditional financing falls short.

Steadfast Equity's Role in Responsible Capital Deployment

While large firms dominate the market, Steadfast Equity stands out for its commitment to ethical investing. The firm prioritizes partnerships with investors who align with its principles of mutual respect, lawful practices, and the ethical use of funds. It deliberately avoids deploying capital in ways that could cause harm.

"We're in the business of empowering builders, not enabling bad actors. That's a standard we don't apologize for - and one that our long-term partners respect."– Steadfast Equity

Steadfast Equity also focuses on investments in artificial intelligence, targeting core infrastructure like data centers, training compute, and vertical SaaS solutions. Unlike firms chasing mass labor replacement, Steadfast ensures its AI investments align with U.S. values and legal frameworks by supporting domestic companies.

"Our mandate is to deploy capital where it can generate long-term value. In 2025 and beyond, that includes artificial intelligence - responsibly deployed, strategically aligned, and ethically governed."– Steadfast Equity

With over $800 million in assets and less than $200 million in liabilities, Steadfast Equity maintains a robust financial position while adhering to its ethical investment philosophy. Its portfolio spans technology, SaaS, biotechnology, real estate, and alternative investments, proving that high ethical standards can coexist with competitive financial returns.

Responsible Investment Practices in Private Credit

What Responsible Private Credit Investing Means

Responsible private credit investing goes beyond simply seeking high returns. It involves incorporating environmental, social, and governance (ESG) factors into investment decisions, aiming to balance financial success with positive societal impact. With global sustainable investments surpassing $30 trillion - a 68% surge in recent years - it’s clear that this approach is gaining momentum as a cornerstone of long-term investment strategies.

In private credit, ESG criteria play a crucial role in evaluating how borrowers handle environmental challenges, treat their employees, and maintain sound governance. Increasingly, private debt funds are linking loan terms to specific performance benchmarks, such as reducing carbon emissions or improving workplace conditions.

"ESG incorporation in private debt provides limited partners (LPs) and general partners (GPs) with additional credit risk insights throughout the deal cycle." - PRI

Regulatory frameworks like the EU’s Sustainable Finance Disclosure Regulation (SFDR) are also pushing for greater transparency. In September 2023, the Principles for Responsible Investment (PRI) released a detailed report outlining advancements and offering actionable guidance for responsible investing in private debt and direct lending.

Building on these principles, Steadfast Equity has embraced a transparent and accountable approach to achieving responsible growth.

Steadfast Equity's Approach to Responsible Growth

Steadfast Equity has earned its reputation by prioritizing transparency, expertise, and a commitment to ethical standards. The firm focuses on delivering measurable integrity over flashy marketing, ensuring its claims are backed by SEC filings and other verifiable records. This approach underscores their dedication to lawful practices, mutual respect, and the ethical allocation of capital - while steering clear of investments that could cause harm.

The firm’s regulatory compliance further strengthens its transparency. By providing access to public records and SEC filings, Steadfast Equity allows investors to independently verify its operations, offering peace of mind without compromising performance goals.

"At Steadfast Equity, we believe that trust is earned through transparency, experience, and adherence to high standards. Our goal is to provide clear, verifiable information so you can make an informed decision with confidence." - Steadfast Equity

Steadfast Equity's Fixed-Income Bond Options

Steadfast Equity’s bond offerings align with its responsible investment principles, delivering competitive returns while adhering to ethical standards. These bonds are structured to cater to various investment strategies, offering flexibility across different timeframes and payment options.

Bond Term	Monthly APY	Compounded APY	Key Features
1 Year	10.0%	12.5%	Short-term stability, quick liquidity
3 Years	11.0%	13.5%	Balanced growth and income
5 Years	12.0%	14.5%	Medium-term wealth building
8 Years	13.0%	15.5%	Long-term growth focus
12 Years	14.0%	16.5%	Maximum long-term returns

For those seeking even higher returns, Steadfast Equity also offers high-yield bond options, including a 3-year bond at 15.0% APY and a 5-year bond at 18.5% APY - both compounded annually and subject to availability.

Operating within a disciplined investment framework, Steadfast Equity ensures that its bond offerings are closely tied to robust, high-quality opportunities. This careful approach not only safeguards investor capital but also ensures that funds are deployed strategically and responsibly.

What's Next for the Private Credit Market

Market Growth Forecasts

The private credit market is on track to grow significantly, with projections showing an increase from $1.5 trillion in early 2024 to $2.6 trillion by 2029. Meanwhile, the broader private markets are expected to expand from $13 trillion to over $20 trillion by 2030. This means the private credit market could nearly double within just five years, underscoring its rapid evolution.

Currently, private debt makes up about 10% of the $16.4 trillion alternative investment sector, with global assets under management exceeding $1.6 trillion. One key area of interest is asset-backed finance, a $5.5 trillion market in the U.S. alone. On a larger scale, the potential addressable market for private credit spans over $30 trillion across various asset classes. These figures suggest that the current growth is just scratching the surface of what’s possible.

New Trends in Private Credit

As the private credit market expands, new trends are reshaping its future. One prominent development is the growing accessibility of private credit investments. Individual investors now have greater opportunities to participate through vehicles like 401(k) plans and European Long-Term Investment Funds (ELTIFs). Currently, 95 active ELTIFs manage €13.6 billion, with projections to reach €35 billion by 2026. In the U.S., private wealth vehicles now manage over $400 billion in assets, reflecting a 25% year-over-year increase.

Investor preferences are also shifting. Allocations to specialty finance have risen from 10% to 18% in 2024, while direct lending’s share has dropped from 58% to 50%. This shift highlights growing interest in niche strategies like asset-based lending, litigation finance, and royalty financing.

Technology is playing a transformative role in the industry. Machine learning and artificial intelligence are enhancing decision-making processes and portfolio monitoring. Meanwhile, digital platforms are streamlining fundraising, underwriting, and operational workflows. Geographically, the market is broadening as Middle Eastern sovereign funds increase their private credit investments. Additionally, the boundaries between public and private markets are becoming less distinct, opening up new opportunities. These developments are equipping the industry to address challenges and seize emerging opportunities.

Challenges and Opportunities Ahead

While the private credit market shows immense promise, it’s not without challenges. In 2024, the SEC took its first enforcement actions against distressed debt managers for failing to implement policies to prevent the misuse of material non-public information. Other risks include valuation inconsistencies and the growing use of payment-in-kind arrangements, which could heighten borrower debt and default risks.

However, these challenges also present opportunities for firms that can navigate them effectively. Regulatory changes, such as the "Basel III Endgame", are prompting banks to shift assets to private debt managers. In times of economic uncertainty and market volatility, borrowers are increasingly turning to private credit as an alternative to traditional bank financing.

New market segments are also emerging. For instance, the NAV lending market has grown to $150 billion in outstanding loans, and U.S. data center development is expanding at a rate of about 25% annually. Asset-backed finance is another area poised for growth, with expectations to increase from over $6 trillion today to more than $9 trillion. Additionally, partnerships between banks and specialized private credit managers are becoming more common, allowing banks to maintain client relationships while transferring credit risk.

"Private credit is doing exactly what investors hoped it would in a year like this: providing strong, floating-rate yield and acting as a shock absorber from market volatility."– Daniel Pietrzak, Global Head of Private Credit at KKR

To thrive in this evolving landscape, firms must prioritize disciplined credit selection, focus on high-quality assets, and implement robust risk management frameworks. These strategies will be essential as the market continues its rapid transformation.

Key Takeaways from Private Credit's Rise

How Private Credit Reached This Scale

Private credit has grown from a niche financing option into a $1.5 trillion industry, signaling a major transformation in modern finance. This remarkable expansion can be traced to regulatory shifts, the hunt for better yields, and the rise of private equity.

Regulatory changes post-2008 played a pivotal role. Laws like Basel III and the Dodd–Frank Act restricted banks' ability to lend to middle-market businesses, leaving a gap that private credit funds quickly stepped in to fill. This pullback in bank-led leveraged lending has created a long-term structural shift, providing fertile ground for private credit providers to thrive.

The prolonged era of low interest rates also fueled the search for yield, prompting institutional investors to look beyond traditional fixed-income investments. Private credit, with its higher returns, became an attractive alternative for pension funds, insurance companies, and other large investors.

Meanwhile, the growth of private equity has further bolstered demand for flexible lending solutions. As private equity firms expanded, they sought financing that could accommodate customized deal structures. Private credit lenders, offering speed, adaptability, and fewer regulatory hurdles compared to banks, became the preferred choice. The ecosystem has also evolved with advancements in technology and the participation of new players like insurance companies and banks through partnership models. Over the past decade, senior lending in private credit has delivered annual returns close to 9%.

"Driven by investor demand, regulatory shifts and the need for flexible lending solutions, we believe this asset class will play a vital role in funding growing companies and economies into the future."
Raj Dhanda, Partner, Global Head of Wealth Management, Ares Wealth Management Solutions

These trends highlight why private credit has become a cornerstone of modern financing.

What Investors Should Consider

For those exploring private credit opportunities, thorough due diligence is essential. The sector's rapid growth has attracted numerous new players, making it critical to work with experienced managers who have a solid track record. Investors should evaluate a manager’s approach to credit selection, risk management, and operational efficiency before committing funds.

Incorporating ESG criteria into investment analysis can also provide valuable insights into credit risk. With global sustainable investments surpassing $30 trillion and private debt impact funds targeting €32 billion, responsible investing is becoming increasingly integral to this space.

Another key factor is the illiquidity premium that private credit offers compared to traditional bonds. While these investments require a longer-term commitment, the potential for higher returns and protection during market volatility can make the trade-off worthwhile. For instance, the Cliffwater Direct Lending Index reported total returns of 12% in 2023, with an average of 11.6% across seven high-interest-rate periods between 2008 and 2023.

Steadfast Equity provides a pathway for investors to tap into these opportunities, offering fixed-income bond options with yields ranging from 10.0% to 18.5% APY. These options allow investors to align their choices with their risk tolerance and investment goals while benefiting from the growth of alternative fixed-income markets.

"The availability of private credit can be beneficial for economic activity and innovation. By providing finance where traditional means fall short, it can support investment and growth opportunities."
Lee Foulger, Director of Financial Stability, Strategy and Risk at the Bank of England

As private credit continues its trajectory toward an estimated $2.6 trillion by 2029, understanding the market dynamics and partnering with skilled managers can position investors to capitalize on this evolving landscape.

The Rise of Private Credit: Transforming Modern Finance | Wall Street Simplified

FAQs

How have post-2008 financial regulations influenced the growth of the private credit market?

Since the 2008 financial crisis, regulations like Basel III and the Dodd-Frank Act have reshaped the banking landscape. These rules require banks to hold more capital, which has limited their ability to lend to certain businesses - especially middle-market firms. This shift left a financing gap, and private credit funds quickly stepped in to fill it.

Private credit has seen explosive growth as businesses look for more flexible funding solutions and investors chase higher returns in a low-interest-rate world. Today, private credit is a key player in providing capital to companies that don’t fit the mold for traditional bank loans, helping it grow into a market worth over a trillion dollars.

What are the risks of investing in private credit compared to traditional bonds?

Investing in private credit comes with its own set of risks that differ from those associated with traditional bonds. A major concern is illiquidity. Since private credit investments aren’t traded on public markets, selling them before they mature can be challenging. If you find yourself needing quick access to cash, this could become a significant hurdle.

Another risk to consider is the higher chance of default. Private credit often involves loans tailored to specific borrowers, who may not have the same level of creditworthiness as traditional bond issuers. On top of that, the limited regulatory oversight in this market can make it harder to fully grasp the terms and potential risks tied to these investments.

While private credit can deliver appealing returns, it’s crucial to thoroughly assess these risks and gain a solid understanding of the market before diving in.

How can individual investors get started with private credit, and what should they keep in mind before investing?

Individual investors have several avenues to explore private credit, including options like business development companies (BDCs), interval funds, and private credit funds. BDCs, for instance, are publicly traded companies that provide financing to small and mid-sized businesses, giving retail investors a way to participate in the private credit market. Meanwhile, private credit funds often come with higher minimum investment requirements and longer lock-up periods, making them a better fit for those with a higher risk appetite and a focus on long-term goals.

When considering private credit, it’s crucial to weigh a few key factors. One major consideration is illiquidity, as these investments aren’t traded on public markets, which can limit your ability to access funds quickly. Another is the credit quality of the loans involved, as higher yields often come with increased risk. Additionally, understanding the fees and terms associated with these investments is vital, as they can have a significant effect on your overall returns. Seeking advice from a financial advisor can help you determine whether private credit aligns with your investment strategy and risk tolerance.