Key Takeaways
- • The Alternative Credit Council report says private credit assets under management grew 17% year-on-year to $4.1 trillion, arguing that public perception has diverged from market conditions.
- • The report characterizes current sector pressures as concentrated rather than systemic, and notes some credit metrics are improving.
- • Concerns about AI disruption to software borrowers prompted investors to withdraw money from business development companies this year, and lenders have responded with tighter covenants, wider spreads, and refused maturity extensions.
- • Roughly one-sixth of surveyed funds reported non-accrual rates above 5%, while the share of loans with significant amendments fell to 10.6% from 11.7% in 2024.
- • Man Group's Kevin Marchetti said about 70% of lender takeovers originated from 2021 and 2022 deals struck at high purchase multiples and low interest rates.
Summary
The Alternative Credit Council has released a report arguing that public perception of private credit has become disconnected from actual market conditions. According to the report, the industry's assets under management grew 17% year-on-year to $4.1 trillion. Authored by Jiří Król and Cindy Ma, the report contends that current pressures in the sector remain concentrated rather than indicating widespread market problems, and notes that some credit metrics continue to show improvement.
The sector has faced challenges this year as concerns about the impact of artificial intelligence on software companies, which represent some of the largest borrowers in private credit, led investors to pull money from business development companies. The report says these concerns have changed lender behavior: some lenders are requiring additional covenants, increasing loan spreads, or refusing to extend maturities for companies viewed as vulnerable to AI disruption.
Michael Small, a partner at KKR & Co. (NYSE:KKR), suggested that professional services may face more exposure to AI disruption than software companies, arguing the market may be focusing on the wrong sectors.
The report acknowledges some stress. Approximately one-sixth of surveyed funds reported non-accrual rates above 5%, meaning lenders stopped recording interest income on those loans due to repayment concerns. Kevin Marchetti, chief investment officer and head of US direct lending at Man Group, said about 70% of lender takeovers originated from 2021 and 2022 transactions, when purchase multiples were high and interest rates were low. The report also found that 10.6% of loans in respondents' portfolios had significant amendments, such as payment holidays or maturity changes, down from 11.7% in 2024.
The sector has faced challenges this year as concerns about the impact of artificial intelligence on software companies, which represent some of the largest borrowers in private credit, led investors to pull money from business development companies. The report says these concerns have changed lender behavior: some lenders are requiring additional covenants, increasing loan spreads, or refusing to extend maturities for companies viewed as vulnerable to AI disruption.
Michael Small, a partner at KKR & Co. (NYSE:KKR), suggested that professional services may face more exposure to AI disruption than software companies, arguing the market may be focusing on the wrong sectors.
The report acknowledges some stress. Approximately one-sixth of surveyed funds reported non-accrual rates above 5%, meaning lenders stopped recording interest income on those loans due to repayment concerns. Kevin Marchetti, chief investment officer and head of US direct lending at Man Group, said about 70% of lender takeovers originated from 2021 and 2022 transactions, when purchase multiples were high and interest rates were low. The report also found that 10.6% of loans in respondents' portfolios had significant amendments, such as payment holidays or maturity changes, down from 11.7% in 2024.
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