Key Takeaways
- • Greg Betz and Alexandre Neiss, writing in City AM, argue that the next phase of private credit direct lending will reward underwriting discipline over scale, with AUM having grown from about $380bn in 2010 to roughly $2.3tn today and a projected $4.5tn by 2030.
- • Median private credit margins narrowed from 6.5 per cent at the start of 2023 to less than 5 per cent in 2025, reflecting intensifying competition in the large-cap market.
- • The lower mid-market is gaining appeal for direct lenders because competition is less intense, allowing better pricing and protections, though it requires deep origination networks given that Investec reviews around 600 opportunities a year to complete 25 to 30 deals.
- • Direct lending defaults stood at 1.4 per cent, versus 2.6 per cent for high-yield bonds and 3.6 per cent for broadly syndicated loans, according to industry data cited in the piece.
- • European private credit, with an estimated $400bn in AUM and non-bank lenders holding about 12 per cent of the region's lending market, offers room for growth, and fragmentation rewards lenders with cross-market expertise.
Summary
Writing in City AM, Greg Betz and Alexandre Neiss contend that private credit, having grown from a niche into a mainstream funding source for private equity-backed businesses, is entering a more mature phase in which scale matters less than underwriting quality. The authors point to rapid growth, greater regulatory and investor scrutiny, a small number of highly publicised defaults particularly in the US, and concerns about underwriting standards as drivers of this shift. Assets under management have grown from around $380bn in 2010 to approximately $2.3tn today, with the market projected to reach $4.5tn by 2030.
The authors argue that investors increasingly question underwriting standards and realised returns rather than fund size alone. In the large-cap segment, where a limited number of deals attract intense competition, pricing and leverage can overshadow credit quality. Median private credit margins have narrowed from 6.5 per cent at the start of 2023 to under 5 per cent in 2025. The piece argues that investors should assess whether managers have protected returns by walking away from unattractive deals.
The lower mid-market is presented as a more attractive area, offering resilient businesses with growth prospects and less competition, which allows lenders to negotiate better pricing and protections. Investec is cited as an example: it supported CBPE Capital's investment in Brookbanks, a multidisciplinary consultancy, with senior debt facilities, and built a bespoke package for Triple Private Equity's acquisitions of Derivia Intelligence, Extel and Euromoney combining acquisition finance, a fund finance facility, hedging and foreign exchange support. The authors note that smaller deals require similar underwriting effort for smaller fees, so lenders need efficient origination. Investec reviews around 600 financing opportunities annually before completing roughly 25 to 30 new deals.
On Europe, the authors argue that the market's fragmentation across legal systems, languages and restructuring frameworks rewards lenders with local expertise and cross-market capability. European private credit has an estimated $400bn in AUM, and non-bank lenders account for around 12 per cent of regional lending. The piece notes that the recent US pressure points, concentrated in semi-liquid and interval funds, are less prevalent in Europe. Because direct lending returns are capped on the upside, the authors stress portfolio-level diversification. Industry data cited shows direct lending defaults at 1.4 per cent, compared with 2.6 per cent for high-yield bonds and 3.6 per cent for broadly syndicated loans, though the authors acknowledge geopolitical uncertainty, higher borrowing costs and software sector disruption could still raise distressed loans.
The authors argue that investors increasingly question underwriting standards and realised returns rather than fund size alone. In the large-cap segment, where a limited number of deals attract intense competition, pricing and leverage can overshadow credit quality. Median private credit margins have narrowed from 6.5 per cent at the start of 2023 to under 5 per cent in 2025. The piece argues that investors should assess whether managers have protected returns by walking away from unattractive deals.
The lower mid-market is presented as a more attractive area, offering resilient businesses with growth prospects and less competition, which allows lenders to negotiate better pricing and protections. Investec is cited as an example: it supported CBPE Capital's investment in Brookbanks, a multidisciplinary consultancy, with senior debt facilities, and built a bespoke package for Triple Private Equity's acquisitions of Derivia Intelligence, Extel and Euromoney combining acquisition finance, a fund finance facility, hedging and foreign exchange support. The authors note that smaller deals require similar underwriting effort for smaller fees, so lenders need efficient origination. Investec reviews around 600 financing opportunities annually before completing roughly 25 to 30 new deals.
On Europe, the authors argue that the market's fragmentation across legal systems, languages and restructuring frameworks rewards lenders with local expertise and cross-market capability. European private credit has an estimated $400bn in AUM, and non-bank lenders account for around 12 per cent of regional lending. The piece notes that the recent US pressure points, concentrated in semi-liquid and interval funds, are less prevalent in Europe. Because direct lending returns are capped on the upside, the authors stress portfolio-level diversification. Industry data cited shows direct lending defaults at 1.4 per cent, compared with 2.6 per cent for high-yield bonds and 3.6 per cent for broadly syndicated loans, though the authors acknowledge geopolitical uncertainty, higher borrowing costs and software sector disruption could still raise distressed loans.
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