Private credit a quiet pillar of stability in uncertain times
15 May 2025
At a time when economies around the world are dealing with waves of uncertainty, private credit providers are becoming key lenders to businesses that are looking to reach calmer shores.
The 2020s have so far been tough for companies in all markets. Not only have businesses had to deal with technological disruption and elevated interest rates, they have also faced exogenous shocks like the Covid-19 pandemic, Russia’s invasion of Ukraine, and this year’s chaotic US tariff policies.
Alongside these challenges, the growth of private credit funds has at least given businesses an alternative source of capital – and one that can provide greater flexibility than traditional bank lending. And because non-bank lenders often have a higher appetite for risk than heavily regulated deposit-taking banks, they can be especially useful in helping companies weather a sharp and far-reaching downturn.
They did just that during the pandemic, ultimately helping many avoid defaults when the pandemic-induced dislocation proved to be short-lived. While central bank rescue efforts propped up consumer demand, a severe tightening of lending conditions meant that many businesses had to turn to private credit funds, which deployed $100 billion in the US alone in 2020.[1]
Private credit posted a lower default rate than leveraged loans during that period,[2] illustrating some of the benefits of the close relationship between private credit funds and portfolio companies. These include improved credit assessment, a stronger diligence process, direct access to the borrower, and the ability to influence corporate strategy to maximize recovery value.
This year, businesses will be strained once more as US president Donald Trump’s tariffs crimp global trade and raise the risks of recession in multiple markets. Economists are expecting global trade flows to decline by as much as 1.5% this year,[3] reversing four years of steady growth.
Once again, private credit could come to the rescue. While capital adequacy rules often force banks to rein in their lending in a downcycle, private credit funds face no such constraints. Private credit liquidity is also deepening, with private debt assets valued at a record US$1.19 trillion last year.[4]
Securities-backed finance is one source of private credit. At times of disruption it can be an option for long-term shareholders who might need financial support or the flexibility to deploy into new opportunities.
How private credit is rising to the challenge
The private credit ecosystem has expanded[5] and now includes a broader pool of institutional investors and a broader range of assets.
As well as supporting private equity deals or lending to mid-market corporates, private credit funds are getting involved in asset-backed finance (such as aircraft loans and equipment leasing), infrastructure and project finance (including loans to data center operators), large-scale residential financing and higher-risk commercial estate financing.
At the individual level, securities-backed finance is joining the fray alongside securities lending, private loans and other forms of financial asset-linked loans.
Private credit funds are also increasingly exploring taking over from banks as financial sponsors in M&A deals,[6] helping portfolio companies respond to tariff-induced economic uncertainty.[7] Such funds are on the lookout for new deals especially as withdrawals by investors from the leveraged loan market threaten to put promising mergers on the back burner.[8]
And those funds will have more capital to deploy, as institutional investors like pension funds and insurers increase their allocations to private credit. Campbell Lutyens, an advisory firm focused on fundraising, found increased interest in private credit in a 23-country poll of investors in private-markets funds last month.[9]
Given their track record, higher yields and strong covenants, private credit funds are expected to be able to better manage their portfolios in a year of geoeconomic uncertainty and market volatility.
From the perspective of borrowers, private credit also offers long-term patient capital. Given the private nature of the deals, there are multiple ways to deal with financial duress,[10] such as earnings adjustments, deferring interest payments, or even converting debt to equity. And with $433 billion in dry powder available,[11] they are able to offer additional credit at a time when traditional lenders may be turning conservative.
Private credit funds also have diversified portfolios with consistent cashflows that can ensure a continued commitment by institutional investors. During the pandemic, sales of personal protective equipment shot through the roof, ensuring that many healthcare firms were able to service loans even as other sectors faltered. Similarly, companies that are primarily reliant on domestic sales can help ensure private credit funds can provide liquidity to their investors even if the global trade war escalates.
There are risks too. Credit growth can fuel the spread of ‘zombie companies’, those that do not produce enough profits from operations to meet debt obligations.[12] But businesses with long-term growth plans, strong management teams and credit discipline can and should strive to secure credit from a variety of sources. The rise of private credit funds, many of which have highly specialised investment teams and a clear understanding of a borrower’s risk profile, is a welcome development overall.
Securities-backed finance is part of this broader trend. At a time of heightened uncertainty, business owners and long-term shareholders can benefit from a growing variety of financing options as they look to ride out the storm.
[1] https://www.aima.org/static/ca7b75a8-9bee-4a2e-ab66e86cd112094d/Private-Credit-Through-the-Pandemic-and-Beyond-Belle-Kaura-004.pdf
[2] https://www.goldmansachs.com/insights/articles/private-credit-may-outperform-public-bonds-as-defaults-rise
[3] https://www.wto.org/english/res_e/booksp_e/trade_outlook25_e.pdf
[4] https://www.ocorian.com/news-press-releases/global-private-debt-assets-rise-new-record-high-119-trillion
[5] https://www.mckinsey.com/industries/private-capital/our-insights/the-next-era-of-private-credit
[6] https://www.bloomberg.com/news/newsletters/2025-04-11/trump-tariffs-push-wall-street-banks-to-private-credit-deals
[7] https://www.bloomberg.com/news/articles/2025-04-10/trump-tariffs-prompt-private-lenders-to-triage-their-portfolios
[8] https://www.bloomberg.com/news/articles/2025-04-10/us-leveraged-loan-funds-see-record-6-5-billion-weekly-outflow
[9] https://www.wsj.com/articles/private-credit-investors-remain-upbeat-amid-recent-turmoil-95f5bd03
[10] https://www.bloomberg.com/news/articles/2025-04-10/trump-tariffs-prompt-private-lenders-to-triage-their-portfolios
[11] https://www.kbra.com/publications/MsDCBLzz/kbra-releases-three-research-reports-on-tariffs-and-market-volatility-s-impact-on-private-credit-rated-debt
[12] https://pitchbook.com/news/articles/more-zombies-less-info-study-warns-about-consequences-of-private-credit-growth
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