That growth is likely to be fueled by investor demand, bank partnerships and potential exchange-traded funds focused on private credit, Moody’s said.
This past year has seen several high-level bank partnership announcements. In September alone, Citigroup and Apollo Global Management announced a $25 billion partnership, Mizuho Financial Group and Golub Capital announced a partnership, and BNP Paribas and Apollo announced a strategic financing collaboration, according to partnerships tracked by Moody’s.
Transparency in private credit will most likely be a byproduct of its exponential growth, said Christina Padgett, head of leveraged finance and private credit research at Moody’s Ratings.
“The likelihood of additional regulation of private credit will largely depend on the dynamics of retail participation,” Padgett said in an email to Pensions & Investments. “It will be increasingly critical to ensure that risk management oversight keeps pace with growth into parts of the market more sensitive to regulation, such as individual retail investors.”
Debates about private credit and regulation are ongoing. Securities and Exchange Commission Commissioner Hester Peirce said this week that the private credit market does not need further regulation. She pointed to the diversity of private credit arrangements as ballast against a systemic issue. “In general, we should welcome the movement of risk from bank balance sheets to private credit funds,” she said.
Moody’s noted that while banks’ total exposure to private credit is around 4% today, “it could become a risk should this market keep growing. As this happens, it will become increasingly important to provide more transparency. And regulators may demand it.”
Moody’s also noted that direct lending competition will intensify as highly leveraged companies turn to direct lenders for large deals.
