Private credit: The rewiring of credit in capital markets

PwC's analysis argues that the growth of private credit is more than an expansion of an asset class at the expense of bank balance sheets. The firm contends that the private credit ecosystem is producing a fundamental realignment of the debt value chain, from deal origination and underwriting through structuring, placement and distribution, and that traditional financial services are bending toward its gravitational pull. Regulation has tightly constrained bank lending platforms, and PwC says private credit is becoming the arena where tailored solutions are built with the aim of becoming a normal part of everyday lending.

PwC attributes the sector's rapid growth to a combination of investor demand for predictable, long-term returns on permanent capital and borrower demand for dedicated, customized financing. Insurers may benefit from classifying qualifying private placement-style loans as Schedule D assets, which carry a lower risk-based capital charge than Schedule BA assets. Private lenders can also accept payment-in-kind interest or equity-like securities, and face no regulatory limit on leverage comparable to the restrictions binding banks. According to Preqin and S&P Capital IQ data cited by PwC, combined private debt unrealized value and dry powder stood at $1.05 trillion in September 2024, up about 94% since the end of 2019. PitchBook data cited in the piece show 51 debt deals of $1 billion or more in 2024, eight times the 2020 total.

The firm also describes growing cooperation between private credit and traditional finance, including platform deals in which banks hold senior tranches while private credit managers retain riskier, higher-yielding portions. PwC notes that scaling the model will require support from origination platforms, wirehouses, accounting and audit firms, and custody providers. Structurally, PwC argues private credit addresses the deposit-funded banking system's asset/liability mismatch, because fund duration is fixed at launch and investors cannot demand redemption on short notice, which reduces the risk of a forced liquidation and provides reserve capital to keep lending during downturns.

PwC acknowledges a key open question. Private credit weathered the pandemic and the Global Financial Crisis, but the industry's current scale and deeper connection to mainstream companies have renewed concern about a systemic feedback loop to the broader economy if loan defaults rise. The firm notes that trade uncertainty and market volatility could test the industry's claim that it can keep debt capital flowing in tough times while managing risk in its existing loan book. Regulators, investors and companies are watching the result closely.