Private debt, which currently accounts for 10 per cent of the alternatives market, is projected to grow significantly by 2030, fuelled by a number of trends, according to BlackRock.
Industry estimates project private markets can grow from US$13 trillion ($20.7 trillion) currently to more than US$20 trillion by 2030, and private debt is singled out as an area that can grow the fastest.
The global fund manager said private credit is expected to benefit by loan migration from banks to “longer-dated liability investors”.
According to the fund manager, private debt – which currently makes up just 10 per cent of the US$16.4 trillion alternative investment universe – has “plenty of room for growth” and will be additionally helped by a number of tailwinds.
In its 2025 Private Markets Outlook, BlackRock said: “Private debt is taking on more fundings previously executed in the public markets, which increasingly focus on deals that are prohibitively large for most middle-market companies. Companies are also relying on private lenders more for financing as they stay private for longer. And they have come to value the certainty of execution and flexibility that private debt provides. At the same time, banks are more selective in how they use their capital. Lastly, investors have an increased comfort and familiarity with the asset class.”
It highlighted that this segment has the potential to become more global, with Europe and Asia-Pacific regions, traditionally reliant on bank financing, poised for growth. However, investors seeking opportunities in these markets will need regional expertise to navigate them.
Secondly, BlackRock expects the definition of private debt to evolve, driven by increased participation in asset-backed finance, which includes debt related to consumer spending, hard assets, as well as commercial financing and intellectual property.
According to data from Oliver Wyman, asset-backed finance is valued at US$5.5 trillion in the US alone.
“The current market share of asset-backed finance held by private lenders is estimated at roughly 5 per cent today, and private lenders are poised to fill in the gaps left by banks, as they have within corporate credit and real estate,” BlackRock said in its outlook.
“We expect this trend to accelerate in 2025, alongside growing appetite for such private-debt investments globally, most notably from US insurers.”
Additionally, previously executed in the public markets, especially deals “prohibitively large for most middle-market companies”, are now shifting to private debt.
BlackRock also expects private debt to see greater performance dispersion, requiring more granular credit selection.
“One of the main themes we see persisting into 2025 is dispersion, but not widespread market disruption,” it said, noting that deepening dispersion applies across many asset classes and private debt is “no exception”.
BlackRock said that corporate borrowers in the US private debt market will face higher cost of capital due to the Fed’s anticipated monetary policy normalisation, rather than easing.
However, overall, corporate borrowers in private debt markets have demonstrated resilience, albeit unevenly.
