Product expansion makes US private credit a potential $34tn market – McKinsey

September 25, 2024 (Preqin News) – Private credit currently accounts for just 21% of a potential addressable market in the US worth $34tn, according to research from McKinsey.

In The Next Era of Private Credit, the consultancy sees considerable room for growth outside of managed funds, particularly in commercial and corporate finance, commercial real estate, infrastructure, consumer finance, and securitized products. ‘We see the potential for an accelerated transition from bank balance sheets to non-bank entities across a broad range of asset and borrower types,’ it wrote in the report.

In Future of Alternatives 2029, Preqin forecasts that assets under management (AUM) at private credit funds will grow from $1.5tn at the end of 2023 to $2.6tn in 2029.

McKinsey sees further potential from non-bank lenders taking market share from banks in adjacent fields. Currently, $1.8tn of the $5.7tn commercial and corporate finance market is held by non-bank institutions, $1.5tn of the $4.6tn commercial real estate market, and $1.9tn of the $9.2tn consumer finance market. Adding in a potential $12.1tn opportunity for securitized products, the consultancy said the total addressable market for private credit in the US is currently $34.0tn, dwarfing the $10.8tn market for publicly traded investment grade and high-yield bonds.

Alternative asset managers are eyeing the opportunity. Earlier this week Apollo Global Management, which has put a figure of $40tn on the addressable market for private credit, launched a partnership for investment grade, asset-backed credits with a day-one commitment of $5bn from French bank BNP Paribas.

European asset manager Arrow Global, which services more than €90bn of AUM, has adopted a local platform approach to expand into new private credit markets. ‘Private credit encompasses a diverse range of activities, including real estate loans, collateralized loan obligations, buyout finance, risk transfers from banks, and leveraged loan syndications,’ Arrow CEO Zach Lewy said in an article for Preqin's Future of Alternatives 2029.

‘As banks deleverage their balance sheets, certain loans they previously provided are now being handled by private credit lenders. Instruments like small business loans, bridge loans, agricultural loans, construction loans, and specialty mortgages will continue to be heavily concentrated among specialized lenders outside the traditional banking system,’ he said.

McKinsey said the new era would be defined by four trends: the expansion of private credit into a broader array of assets, the rise of ecosystem partnerships and open-architecture business models, amplified advantages of scale for competitive differentiation, and increased focus on technology to boost scale and performance.

_{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.}