Summary
As traditional banks retreat from lending markets, Private Debt is stepping in to fill the gap — with risks and opportunities.
Executive Summary
As traditional banks retreat from lending markets, Private Debt is stepping in to fill the gap. From nearing USD 2tn globally today, Private Debt’s assets are expected to reach USD 3.5tn by 2028. Why is this? Private Debt offer higher yields than public credit and is less sensitive to short-term market volatility, so works well as a portfolio diversifier.
Growing allocations to Private Debt are driving some convergence with Public Debt, although both continue to exhibit distinct behaviours. The scale up of the market is driving partial convergence in risk perception and processes, yet material differences persist — notably the performance drivers — creating complementary, not fully substitutable, opportunities for diversified fixed income portfolios.
Going forward, we’ll see more retail investors allocating towards private debt. This means the industry needs to evolve and develop new products and structures that are suited to retail investors’ needs. This includes evergreen funds, development of a secondary market, lower minimum investment requirements as well as enhanced reporting and fintech distribution to improve liquidity.
Private Debt investors are navigating multiple ruptures at once. Industry-wise, it prepares to welcome new entrants. Cyclically, the asset class benefits from more stable credit conditions, but also faces shocks (trade wars, geopolitics) that impact deal flow. As portfolio diversification becomes more challenging, Private Debt will be even more in demand, but this growth must be managed by exploring new opportunities across regions and sectors.
Key risks include overvaluation from competition, possible rising default from past vintages and risk from growing Payment-in-Kind use, fundraising uncertainty, more frequent liquidity stresses, and NBFI–bank contagion.
In perspective, the ongoing transformation of private debt is unlocking opportunities, from mainstream recognition and fintech-driven access to ESG integration, AI-powered innovation, and global expansion, which will reshape the market and drive growth across new borrower segments and emerging industries.
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