Trends and outlook in private credit: takeaways from PDI New York Forum
Oliver Noye, our Head of New York, attended the Private Debt Investor: New York Forum last week. He has shared his key takeaways from the panels and discussions, offering valuable insights from the event, alongside the launch of our New York office.
Focus on alpha and premium expectations
In the current private credit landscape, there has been a significant shift towards non-sponsored deals, with investors anticipating premiums between 100 to 350 basis points. This focus on premium returns has fostered high levels of investor satisfaction, as long as benchmarks are met.
In response, direct lenders are tightening documentation and adjusting underwriting standards, resulting in more borrower-friendly terms while still adhering to rigorous risk management practices. This evolution indicates a growing sophistication in how lenders approach their deals.
Borrower resilience amid economic uncertainty
Despite facing a challenging economic environment, borrowers have demonstrated remarkable resilience. Many companies have effectively navigated recent downturns by streamlining cost structures and enhancing cash flow. Lower valuation multiples and a more cautious customer base have particularly benefited sectors like technology.
This stability has reinforced the robustness of portfolios, allowing firms to weather economic adversities more effectively.
Growth of private credit and industry evolution
The direct lending market is poised for significant growth, with projections estimating an increase from $1.5 - $3.5 trillion by 2028. This surge is being fuelled by substantial capital inflows into the asset class and collaborative efforts between banks and credit funds, with the syndicated markets coming back.
However, as differentiation among lenders becomes more challenging, they are concentrating on their unique advantages, such as sourcing relationships and sector expertise. The competitive landscape is evolving, making it essential for firms to adapt to shifting investor preferences and market conditions.
Strategic adjustments and future predictions
Looking ahead, private credit firms are adjusting their strategies in anticipation of a potentially lower interest rate environment. Investors are increasingly cautious about pursuing returns in cyclical sectors, placing a higher priority on recovery rates and overall credit landscape stability.
Many industry leaders anticipate a resurgence in private credit and clearer market conditions post-elections, which bodes well for the outlook in 2025. Those firms that maintain strong underwriting practices and competitive advantages in deal sourcing are likely to fare better in this changing environment.
Many industry leaders anticipate a resurgence in private credit and clearer market conditions post-elections, which bodes well for the outlook in 2025. Those firms that maintain strong underwriting practices and competitive advantages in deal sourcing are likely to fare better in this changing environment.
Conclusion: embracing opportunities ahead
As direct lending and private credit continue to evolve, industry leaders express optimism about the opportunities on the horizon. By fostering strong relationships, focusing on unique market needs, and remaining adaptable, firms are well-positioned to thrive in this dynamic landscape. The projected growth of the private credit market, potentially reaching between $5 to $7 trillion in the next decade, underscores the importance of strategic partnerships and innovative solutions as key drivers for success.
We are delighted to announce the appointment of Oliver as our head of New York.
Oliver's profile
