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Key takeaway
Private credit represents a large and growing opportunity set that could offer investors potential return premium and diversification1 if they have the capacity to accept some illiquidity.
What is private credit?
Private credit funds provide corporate loans and other credit instruments outside of traditional banks and public markets.
The private credit market has expanded rapidly in recent years. In fact, it’s more than doubled the growth rate of the broader asset management industry over the last decade.2 This growth has been fueled by numerous factors including banks stepping back from certain types of lending, an increased demand for yield, and a structural trend of greater openness to and availability of private capital solutions. The asset class is also expected to keep growing. In 2024, assets under management in private credit globally stood at approximately US$2.1 trillion. By 2030, that number is expected to rise above US$4.5 trillion.3
Types of private credit
Key sub-asset classes within private credit include:
Direct lending
Privately negotiated loans made directly to middle-market companies, which are often owned by private equity sponsors, from outside the broadly syndicated loan market.
Structured credit
Comprises securities backed by diversified pools of loans or credit assets, such as collateralized loan obligations (CLOs) or asset-backed securities.
Growth lending
Senior secured loans to venture-backed, high-growth companies (often those that have reached meaningful scale but are not yet consistently profitable).
Asset-based finance
Involves private lending secured by assets such as consumer loans, auto loans, receivables, and others; a growing segment of private debt strategies.
Real estate debt
Uses private capital to finance the purchase, development, or improvement of real estate properties.
Infrastructure lending
Finances large-scale projects such as roads, bridges, airports, utilities, and renewable energy projects.
Investment-grade private placements
Privately negotiated investment-grade debt issued by corporate, infrastructure, or asset-backed borrowers.
Key features of the private credit market
Several features distinguish private credit from public credit, including:
Illiquidity premium
Private credit is typically less liquid and more complex than public credit. To compensate for this illiquidity and complexity risk, private credit has the potential for higher premia, or returns.
Covenants
Covenants are contractual protections in loan agreements that the borrower is obliged to meet. Examples of such conditions/restrictions could be: maintaining leverage (debt) ratios below a certain level, keeping liquidity above a certain threshold, or limiting the ability to take on new debt without lenders’ consent. These credit-protective features are less standard in the public market but are commonly available in the private credit market and are potentially attractive in times of credit market volatility.
Rate floors
Rate floors are contractual provisions that set a minimum base rate on floating-rate loans. They seek to protect asset owners from falling interest rates and allow lenders to maintain yield in changing interest-rate environments.
Diversification potential
Private credit offers potential diversification alongside its public counterpart.1 There are also opportunities to diversify within this vast market. Private credit investments span collateral, size, and quality profiles. Allocating to different subsectors may offer exposure to different return drivers, which could make portfolios more resilient in the face of uncertainty.
The bottom line
Private credit may offer attractive potential returns and diversification benefits to investors with the capacity to accept less liquidity. This said, it’s important to take a thoughtful approach to private credit accounting for individual investors’ objectives, risk tolerance, and liquidity needs.
1Diversification does not ensure a profit or guarantee against loss.
2Sources: Preqin as of 2 June 2025. All figures are nominal, 2024 data is a Preqin forecast. BCG, Global Asset Management Report 2025. Private credit has grown at a 13.6% CAGR from 2014 – 2024, compared to a 6.5% AUM growth rate for the asset management industry (excluding privates).
3Preqin, “Private Markets in 2030,” 2025.
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Disclosures
For financial advisor and institutional use only. Not for use with the public. All investing involves risk. Diversification and active investment do not ensure profit or protection against losses. This is for educational and informational purposes only. Nothing herein constitutes investment advice or a recommendation and should not be relied upon as a basis for making an investment decision. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any security or instrument, or a solicitation of interest in any Wellington vehicle, account, or strategy. Opinions expressed reflect the opinions of the author(s) as of the date indicated and are based on the author’s opinions of the current market conditions, which is subject to change. Past events and trends are not necessarily indicative of future events or results. Forward-looking statements should not be considered as guarantees or predictions of future events. While any third-party data used is considered reliable, its accuracy is not guaranteed. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management.