The size of the global private credit market is on course to break the $1 trillion mark by 2020, according to a research by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA).
The industry, which manages approximately $600 billion in assets, has grown 14-fold since 2000. Based on its current growth rate, the sector will reach $1 trillion in assets by the end of the decade, the ACC forecasts.
The ‘Financing the Economy’ report highlighted that small-to-medium-sized businesses remain a dominant feature of the lending market. Around a third (34 percent) of total committed capital is now being lent to SMEs and the mid-market. Large businesses receive around a fifth (22 percent) of all lending.
AIMA’s CEO Jack Inglis said: “Private credit has become a permanent feature of the lending landscape and we forecast that the industry will break the $1 trillion ceiling by the end of the decade. Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future. The industry continues to deliver flexible deals suited to borrowers’ needs and the success of the sector to date is fuelling its expansion into new markets.”
The survey suggests that private credit managers are having to demonstrate more flexibility as both covenant and coupon terms have shifted more favourably towards the borrower. Nearly half of private credit managers stated that covenants had become less demanding over the past three years with only 14 percent saying loan terms had become more demanding.
The flexibility shown by private credit managers with respect to loan covenants is matched by their focus on lending standards and commitment to robust risk analysis, with 85 percent of all private credit managers citing these factors as their most resource intensive activity. At the same time, the preference of private credit managers for senior secure positions within the capital structure means that they are well placed to protect the interests of their investors, says the report.
Stuart Fiertz, chair of the Alternative Credit Council and co-founder of Cheyne Capital, said: “As private credit funding continues to have a positive impact on the real economy, the growth of the industry demonstrates how this type of financing is becoming increasingly integral to funding ecosystems globally. For investors too, alternative credit has become an asset class in its own right that provides portfolio diversification and a decorrelated driver of absolute returns. As the industry looks set to maintain this momentum in 2018, the ACC continues to work in support of private credit to ensure it remains a valuable funding mechanism that uses a diligent approach to make quality loans that finance the economy and satisfy investor requirements.”
Gus Black, partner at Dechert, said: “Private credit funds are increasingly being structured with the borrower in mind – private credit managers are willing to offer greater flexibility and favourable payment options. Growth in alternative credit is good news for borrowers as it presents new and creative ways for them to expand their businesses.”
Alternative Investment Management Association, Alternative Credit Council, Credit market, Global