Looking to the past, the present, and the future of private debt following a resilient year.
January 6, 2024 (Preqin News) – Private debt fundraising had a slow start in 2024 but, despite momentum building in the second half of the year, full-year fundraising is expected to end the year down on 2023.
Direct lending was the hottest strategy in 2024, securing 77.4% ($152.7bn) of total capital raised, surpassing the total raised last year. Investors continue to allocate to the largest and most well-known fund managers, with over half of the capital raised in direct lending coming from eight funds, including those run by Blackstone, Ares, and ICG. Special situations was the second most subscribed debt strategy, with $24.8bn raised.
Direct lending tops 2023 fundraising levels
Number and aggregate capital raised by direct lending funds, 2015–2024 YTD
Source: Preqin Pro. Data as of December 2024
In Preqin’s latest survey, North America is the clear regional favorite for investors in 2025, with 92% of LPs saying the US presents the best opportunities.
Preqin News spoke with private debt managers and advisors to gather their thoughts, opinions, and predictions for fundraising, consolidation, deals, and performance in 2025.
Fundraising
Fundraising across private markets was slower in 2024 than in recent years when we saw record fundraising. That said, private credit, and especially core middle-market sponsored direct lending, were relative bright spots. Looking ahead, we expect modest improvement in the fundraising environment. Assuming the Trump administration facilitates an increase in M&A activity, managers could have more realizations that potentially lead to an increase in distributions. We expect this will drive a pickup in LP allocations.
Raghav Khanna, Managing Director and Co-Portfolio Manager. Oaktree Capital Management (Los Angeles, US)
For a whole host of regulatory reasons, it’s possible – trending towards probable – that the role of banks has fundamentally shifted. Banks are starting to function more like utilities, shifting much of their risk management activities into their asset management arms. Here, they aren’t subject to the same capital requirements and can focus on increasing fee income. This shift benefits us greatly, as capital for high-risk investments is increasingly channeled toward private credit and third-party asset management.
Zach Lewy, CEO & CIO, Arrow Global (London, UK)
Zach Lewy’s comments appeared in Preqin 2025 Global Report: Private Debt. Read the full article here: Get ready to reap the benefits of private credit 2.0
We believe that private debt is well-positioned for sustained growth going into 2025. Regulation continues to impact bank balance sheets and lending ability, especially in the mid-market space. We also see structural drivers of growth, especially in Europe where family-owned enterprises are transferring to institutional ownership and sector consolidation through cross-border M&A activity is creating the champions of tomorrow. There is enormous value creation in this process and a clear opportunity for LPs to participate in these growth stories.
Symon Drake-Brockman, Managing Partner, Pemberton (London, UK)
There is global interest rate volatility as central banks are starting or continuing to make moves, and institutional investors are starting to recognize that traditional portfolios might be a little too exposed to these types of risks. Private credit allows investors to diversify from those more traditional areas within your portfolio, but it can also serve as a ballast from the liquid markets where there could be more volatility.
Laura Parrott, Senior Managing Director and Head of Private Fixed Income, Nuveen (Charlotte, North Carolina, US)
Laura Parrott’s comments appeared in Preqin 2025 Global Report: Private Debt. Read the full article here: How private debt is developing and why investors are looking for quality
We see a defensiveness, with investors allocating mostly to North America as the best-known geography; direct lending, as the simplest and best-known strategy; and disproportionately to the largest, best-known managers. Investors may remain positive on private debt in the long term, while appearing to be less adventurous overall than 12 months ago.
RJ Joshua, VP, Head of Private Debt, Research Insights, Preqin (Singapore)
Cash flow predictability will become more and more relevant in guiding the choices of investors. Various categories of private assets have indeed very different illiquidity profiles. Investors are becoming more sophisticated in selecting private asset categories to fit the specific needs or goals of their asset allocation. In a world of persistent uncertainties, we very much like private credit secondaries, and anything related to reshoring and comprehensive IT and physical security.
Roberto Marsella, Head of Private Assets, Generali Asset Management (Milan, Italy)
The three key ingredients that resonate most with our LPs are: a focus on an opportunity set that flies under the radar of traditional credit funds, a thematic and business model-led approach, and execution through a high-quality institutional platform. We concentrate on an underserved financing segment and within it targeting non-cyclical businesses with high recurring revenues, strong gross margins, and flexible cost bases that exhibit strong credit characteristics, a combination which allows us to drive differentiated risk-adjusted returns, benchmarking in the top 5% versus our peers. This approach resulted in a 107% re-up rate and significant new commitments, enabling us to close Fund II at the €650mn hard cap - more than double the size of our inaugural fund.
Jonathon Ferguson, Partner and Co-Founder, AshGrove Capital (London, UK)
Aerospace leasing fits in a few buckets. You take an ownership in the aircraft, so that’s equity, but it’s a real asset with return characteristics that are similar to private credit or infrastructure plus. With older aircraft, funds might see a return in the mid-teens and above that’s completely uncorrelated and has downside protection and tax benefits.
Nathan Dickstein, Managing Director, Head of AEI Aerospace Leasing (Boca Raton, Florida, US)
Credit secondaries have come out of nowhere to become an asset class in itself. If you look at the number of direct lending and special situations credit funds that have been raised in the last half a decade, you see why the secondaries market exists, because that paper, sooner or later, will seek liquidity.
Sunaina Sinha Haldea, Global Head of Private Capital Advisory, Raymond James (London, UK)
Historically, private credit has been an illiquid asset class with minimal secondary-market trading. However, new financing options like NAV loans, GP financings, and creative continuation vehicles are expected to add some liquidity to the market. These innovations must be carefully evaluated, as increased complexity without necessary covenants or collateral can introduce new risks.
Ben Radinsky, Partner, HighVista Strategies (New York, US)
Investors are looking to increase their exposure to investment grade and private credit. That’s across our institutions, but insurance companies are looking for ways to capitalize and lock in on the higher rates we’ve been enjoying over the past couple of years. You can capture and lock them in for a longer duration and still enjoy the benefits that private capital provides – structural protection, yield enhancement through the illiquidity premium and call protection.
Laura Parrott, Nuveen
What differed in 2024 compared with prior years was LPs’ increasing focus on evergreen vehicles, likely related to the dearth of distributions from drawdown vehicles. We expect this trend to continue, with LPs focused specifically on BDCs and perpetual structures. Additionally, we think LPs will increasingly move beyond sponsor-backed middle-market direct lending into private credit strategies that offer a diversifying, and potentially higher, return stream.
Raghav Khanna, Oaktree
Mergers, acquisitions, and partnerships
On the GP side, we are going to see a lot more consolidation. We’ve seen BlackRock make big moves in private markets in 2024 and its competitors will all be asking whether they should be doing the same. We'll continue to see funds being sought for acquisition, with additive strategies targeting secondaries, credit, infrastructure, and mid-market buyouts. I think we're just at the beginning of GP consolidation.
Sunaina Sinha Haldea, Raymond James
There’s been a huge amount of M&A in the space and we’ve been very active with larger, often listed managers acquiring good fund management businesses. The last year the market has seen a very significant number of deals like BlackRock acquiring GIP and HPS, and TPG acquiring Angelo Gordon. The question is whether it will continue at this pace because there’s only a finite number of opportunities to acquire managers that have got to scale.
James Bromley, Partner, Private Funds Group, Weil (London, UK)
Bank and private asset manager tie-ups have clearly been a standout trend in 2024. This has largely been driven by the desire of banks to participate in the growth of the sector and managers wanting to access the large client networks of banks. Pemberton has agreed a strategic partnership with Santander to launch Invensa, an inventory solutions platform to respond to the needs of global corporates in strengthening their supply chains models, combining the strengths of both firms to create what we hope will become an industry leading offering to solve a significant challenge that has emerged in recent years.
Symon Drake-Brockman, Pemberton
Our partnership with Pinnacle provides access to a sophisticated global asset management platform. They bring market intelligence, world-class sales and marketing capabilities, and a commitment to helping us grow both in the US and internationally. Pinnacle will accelerate the institutionalization of VSS, positioning us for long-term success.
Jeffrey Stevenson, Managing Partner, VSS Capital Partners (New York, US)
Both parties must be fully - and almost perfectly - aligned as to where they're headed together. It's a tough industry. It's very competitive, with lots of twists and turns along the way. The second thing is that the culture and values need to fit with the new people you will be working with. No amount of money can make up for an unhappy relationship - it's not about dollars and cents, it's really about the strategy and its execution.
Sunaina Sinha Haldea, Raymond James
Deals
2025 is shaping up to be a favorable environment. Excess dry powder is pushing private equity and private credit firms to transact, easing regulations and lower interest rates are enabling freer capital flow; and LPs are pressuring for liquidity from aging funds. These factors will intensify competition, with more activity across the lending landscape, including in the lower middle market.
Jeffrey Stevenson, VSS Capital Partners
If the incoming administration facilitates more M&A activity, we expect you’ll see increasing demand for both middle-market and large-cap sponsor-backed direct lending. This should not only increase lending activity in the space but could also stabilize – if not widen – spreads, leading to more attractive prospective returns.
Raghav Khanna, Oaktree
We expect large borrowers to continue to pit upper middle-market lenders against the syndicated loan market in 2025. In contrast, we believe core middle-market lenders will continue to benefit from an attractive spread and strong financial covenants, which enable them to bring borrowers and sponsors to the table at the first signs of trouble.
Putri Pascualy, Senior Managing Director and Client Portfolio Manager for Private Credit, Man Varagon (New York, US)
In general, documentation and covenants have eased in larger deals, and even some upper-middle-market transactions have dispensed with financial maintenance covenants. However, in the middle market and lower middle market, terms have remained fairly consistent. With less competition among lenders, specific performance covenants relating to general business terms have not generally eroded, and lenders appear to have the negotiating leverage to ask for collateral not subject to the asset stripping that may occur in larger deals.
Ben Radinsky, Partner, HighVista Strategies
AshGrove’s thematic approach in B2B software and services creates a flywheel effect across origination, underwriting, and portfolio management. As a specialist lender, we’ve built a differentiated set of origination channels within our target deal size range, while our intimate understanding of business models, operating metrics, and trends across our focus sub-segments allows us to drive a more efficient and accurate underwriting process and manage risk effectively across the portfolio, where we serve as board observers on more than half of our portfolio companies.
Jonathon Ferguson, AshGrove
European private debt markets are set to benefit from a resurgence in M&A as it becomes easier to accurately price deals and execute transactions due to lower rates. The outlook for existing portfolio companies is similarly positive. Lower interest rates should reduce debt burdens and ease debt servicing, allowing businesses to more effectively channel resources. Although returns across all asset classes may be lower in 2025, the illiquidity premium inherent to private debt should remain intact.
Sandrine Richard, Head of Private Debt, Generali Asset Management (Paris, France)
There is significant demand for capital from a large pool of borrowers, who struggle to access financing and have diverse capital needs that are less correlated to M&A volumes. This creates a growing structural opportunity in Europe and follows the same trend observed in the US over a decade ago, particularly across founder-led businesses where the benefits of a non-dilutive credit solution are becoming more widely recognized.
Jonathon Ferguson, AshGrove
In a world of heightened regulatory and geopolitical uncertainty, a strong focus on businesses and sectors with low ‘stroke-of-pen’ or regulatory risk, as well as companies with a diversified consumer base and supply chain, are better positioned to navigate the potential negative impacts from sudden regulatory changes, higher tariffs, and the resulting inflationary pressures. We believe credit selection will continue to be the key driver of alpha generation in 2025.
Putri Pascualy, Man Varagon
Performance
Private credit's resilience has been questioned and critics often say the asset class hasn’t been cycle-tested. We think this isn’t the case as the pandemic, the energy crisis triggered by the Russia-Ukraine conflict, hyperinflation, and levels of interest rates not seen since the 2008 Global Financial Crisis have exposed the sector to extreme events and shocks. Private markets have of course not escaped the impact of these events, but overall, the performance of the asset class remains robust and, according to data published by one of the large US banks, has outperformed leveraged loans and high yield bonds from a returns and losses perspective.
Symon Drake-Brockman, Pemberton
Private credit defaults in the second quarter of 2024 rose to 2.71%, according to Proskauer, while defaults in the broadly syndicated loan market were approximately 4.33%. This points not only to the strong underwriting capabilities of private debt managers, but also the flexibility that these lenders offer borrowers when issues arise. Fortunately, policy-makers have acknowledged that systemic risk associated with private debt is limited.
Drew Maloney, President and Chief Executive Officer, American Investment Council (Washington DC, US)
Drew Maloney’s comments appeared in Preqin 2025 Global Report: Private Debt. Read the full article here: Private debt proves resilient despite elevated interest rates
Higher-for-longer interest rates are a double-edged sword in private credit. On the one hand, higher rates will weigh on the overleveraged borrowers who haven’t been able to right-size their balance sheets since interest rates began rising in 2022. Some of these companies will have to restructure their debts, and it behooves LPs to pay close attention to their managers’ restructuring and workout capabilities. On the other hand, for managers who have been disciplined in their credit selection, higher-for-longer rates will be good for their prospective returns.
Raghav Khanna, Oaktree
Although it will take time for lower rates to impact corporate financials, improving borrowers' coverage ratios and free operating cash flows should ease some of the burden companies have faced. Higher interest rates have structurally impacted transaction terms, such as increasing payment-in-kind (PIK) interest payments. Assuming rates fall, borrowers can pay down PIK, reducing their overall debt burden. It is also possible that spreads will tighten, reflecting a reduced overall debt payment burden.
Ben Radinsky, HighVista Strategies
While covenant waivers and coupon PIK-ing are indicators of stress, they do not necessarily mean a borrower is doomed. We ensure that underwriting is based on worst-case scenarios providing a margin of safety. This cycle has demonstrated the resilience of our portfolio, with less than 2% classified as watch-list. We have been diligent in selecting managers with proven restructuring capabilities, ensuring that in the unfortunate event of an actual default, we avoid realizing losses.
Marco Busca, Head of Indirect Private Debt, Generali Asset Management (Milan, Italy)
Success in distressed situations requires a deep understanding of core competencies. While it’s crucial to know the relevant processes and strategies, true expertise comes from accurately assessing asset value and knowing what you’re willing to pay. Beyond valuing the asset, a key success factor is the technical skill to manage it and implement value-add steps that ultimately drive a profitable exit. These three competencies – valuing, managing, and exiting – are essential for delivering strong returns.
Zach Lewy, Arrow Global
In the face of higher-for-longer interest rates, we anticipate that core middle market lenders focused on companies with strong cash flow generation, continued solid growth, and which operate in non-cyclical, recession-resistant, or recession-resilient sectors, will continue to generate attractive unlevered returns. However, higher-for-longer rates will continue to add expense pressure for select borrowers, particularly those who are highly levered and/or experiencing weak operating conditions.
Putri Pascualy, Man Varagon
There’s a broad base of investors interested in aerospace leasing. We have everything from institutional pension plans, who like the long-term, uncorrelated cash flows, to high net worths, who like the tax benefits of depreciation. Leasing accounts for over 50% of the global fleet and we think it will continue to grow.
Nathan Dickstein, AEI Aerospace Leasing
We are very excited about private debt in the medium to long term. We think spaces like asset-backed finance and Asian private credit, particularly India where economic growth, improved legal protections for lenders, and a less competitive market will offer a growing stream of interesting and attractive opportunities for lenders with the expertise and presence in the region.
Raghav Khanna, Oaktree
In private credit, the ongoing demand for yield remains a dominant theme. But as the private credit landscape grows, investors are increasingly looking for diversification – seeking out less correlated allocations and new risk-return profiles. With senior direct lending now a core part of credit allocations, many are focusing on higher-return private credit strategies offering 'credit alpha', such as specialty lending, asset-based lending, structured capital, and special opportunities.
Gabrielle Joseph, Managing Director, Rede Partners (London, UK)
There’s certainly extensive potential ahead. Five years ago, private credit was one bucket and most of it was direct lending. Now it’s clearly evolving and diversifying. There’s direct lending, real estate lending, construction lending, litigation finance, capex finance, and infrastructure debt, to name a few. Private credit is significantly broader now, and I do believe it’s going to be a huge asset class.
Zach Lewy, Arrow Global
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.