Private credit is likely here to stay, despite growing jitters

Private credit continues to attract scrutiny as market conditions tighten and signs of strain emerge across parts of the lending landscape. Headlines have focused on weakening covenants, pockets of poor practice and questions around resilience in a downturn. Yet these concerns should not obscure a more fundamental reality: private credit has become a structural feature of the global financial system.

Understanding what is driving both the growth and the current noise is critical to assessing its long term role.

From niche to mainstream

Over the past two decades, private credit has transformed from a relatively small, overlooked corner of alternative finance into a core pillar of today’s financial system. From a market of roughly $300bn following the Global Financial Crisis - where banks issued investment grade private placements, Business Development Company’s (BDCs) lent to middle market companies and hedge funds focused on distressed borrowers - private credit has expanded to around $2.5tn(1) and continues to gain momentum.

This growth has been fuelled by a combination of banking consolidation, tighter regulation and higher capital requirements that have constrained traditional lending, creating space for non bank lenders to step in. At the same time, sustained demand from private equity sponsors, ultra loose monetary policy for much of the post GFC period, and a growing pool of investors seeking higher returns and regular cash flows have accelerated the sector’s expansion.

Today, private credit is a multi trillion dollar market accessed by a wide range of investors. A diverse ecosystem of lenders originates loans secured against a broad range of collateral types (from real estate and infrastructure to corporate, consumer and asset based exposures) and serves an increasingly wide array of borrowers. This diversity matters. It challenges the tendency to treat private credit as a homogenous asset class and reinforces the importance of selectivity, underwriting discipline and partnering with reputable, well-resourced investment managers.

Signs of strain are emerging

Inevitably, signs of strain have begun to emerge as the market has scaled. Covenant lite structures, the growing use of payment in kind terms, and high profile cases of poor practice have attracted considerable attention. Yet these events, while noteworthy, are not proof of an immediate problem - viewed in a broader macroeconomic context, the emergence of stress is unsurprising. The current credit cycle, which began in 2010, has become one of the longest on record. For over a decade, corporate earnings were supported by low interest rates, abundant liquidity and highly accommodative central bank policy. Post COVID fiscal stimulus further prolonged the cycle, inflating asset prices and sustaining consumption. The sharp rise in interest rates since then has inevitably raised financing costs and uncertainty.

Volatility creates risk and opportunity

But stress does not eliminate opportunity, and not all private credit assets carry similar risks. Real estate, consumer credit and asset based lending each have distinct collateral and idiosyncratic fundamentals that continue to create attractive lending opportunities, even in more challenging environments.

How we approach private credit

At TPT Investment Management, private credit remains a core strategic allocation, reflecting its ability to deliver secured income, diversification and floating rate protection relative to traditional public markets. Crucially, our exposure is focused on senior, secured lending across a range of collateral types, rather than a single segment of the market.

The continued expansion of private credit has broadened the opportunity set, allowing capital to be rotated selectively towards areas where we are appropriately compensated for the illiquidity premium. Manager selection is focused on partnering with reputable, well resourced investment managers that demonstrate differentiated origination, rigorous underwriting of complex collateral and clear contractual protections.

Equally, disciplined deployment during periods of heightened competition, and the ability to provide borrowers with certainty of execution in stressed environments all underscore the value of dynamic management at a time of increasing market scepticism.
Supported by robust governance, we believe these principles provide a strong foundation for navigating today’s private credit landscape and delivering long term outcomes for members.

This content is intended for professional audiences only and should not be relied upon by individual scheme members. This article is provided for information purposes only and does not constitute financial advice, investment guidance, or a recommendation to buy or sell any investment. Past performance is not a reliable indicator of future results. Investments can go down as well as up, and you may get back less than you invest. If you are considering making an investment, you should seek advice from a regulated financial adviser. 

(1) https://www.pwc.com/m1/en/publications/2025/docs/pwc-difc-private-credit-report-seizing-the-moment.pdf