Private Credit's Growing Slice of the $22 Trillion Total Credit Market

The global credit market is undergoing a seismic shift, with Barclays estimating its total size at $22 trillion by 2025—a figure encompassing everything from corporate bonds to mortgages and loans. Within this vast landscape, private credit—a segment of non-bank lending to unlisted companies—is carving out an increasingly prominent role. Projected to grow from $1.5 trillion in 2024 to $3 trillion by 2028, private credit is emerging as a critical financing alternative, driven by structural shifts, macroeconomic tailwinds, and evolving investor preferences.

The Rise of Private Credit: Drivers and Opportunities

The post-2008 financial crisis reshaped banking regulations, forcing traditional lenders to retreat from mid-market borrowers. This created a funding gap filled by private credit firms, which now dominate sectors like direct lending and special situations.

Key drivers include:
1. Interest Rate Dynamics: Floating-rate structures in private credit deals have thrived as rates rose post-2022, offering higher yields and inflation protection.
2. Domestic Revenue Resilience: Mid-market firms, which generate 80%+ of revenue domestically, are less exposed to trade tariffs, making them attractive to lenders.
3. Regulatory Push: Basel III’s 2024 implementation is further squeezing banks’ risk appetite, diverting borrowers toward private lenders.

Strategic Opportunities:
- Real Estate: Falling asset values and reduced bank lending post-2023 crises have created opportunities for private credit to fill financing gaps.
- Special Situations: Companies strained by high interest rates are turning to tailored solutions, such as debt-for-equity swaps, as seen in the Pluralsight case.
- Rated Funds: Structures bifurcating debt and equity tranches are attracting insurers, with over 500 rated funds globally by 2023.

Risks and Challenges

While the outlook is bullish, private credit is not without pitfalls:
- Liquidity Constraints: Illiquidity is a trade-off for higher yields, requiring long-term commitments.
- Credit Quality: Rising defaults, particularly in CCC-rated bonds, could strain portfolios if economic growth falters.
- Regulatory Headwinds: SEC reforms (2023) and Basel III’s capital requirements increase compliance costs, favoring larger players.

The $22 Trillion Context: Where Private Credit Fits

The total credit market includes everything from government bonds to corporate loans. Private credit’s $3 trillion by 2028 projection represents about 14% of the $22 trillion pie—a small but fast-growing segment. Its appeal lies in its low correlation to public markets, yielding 2–4% premium over traditional fixed income.

Conclusion: A Niche, but Strategic, Opportunity

Private credit’s ascent is no fad. With structural tailwinds from banking regulation, rising rates, and borrower demand, it is poised to capture a growing share of the $22 trillion credit market. Barclays’ projections suggest that disciplined investors can capitalize on its floating-rate inflation hedge, domestic revenue resilience, and special situations arbitrage—but must remain vigilant.

The sector’s risks, including liquidity traps and credit deterioration, demand rigorous due diligence and a long-term horizon. For portfolios seeking yield and diversification, private credit’s $3 trillion opportunity is a compelling, if nuanced, bet.

As the credit landscape evolves, private credit’s role as a flexible, high-yield alternative will only grow—provided investors navigate its complexities with care.

Data sources: Barclays Capital, McKinsey & Company, IMF, and SEC filings.