Key Takeaways
- • Private debt fundraising rose from $116.1 billion in 2014 to a peak of $302.1 billion in 2021, according to Pitchbook data cited in an EY Luxembourg and Alternative Credit Council report.
- • The ACC and EY Luxembourg estimate the global private credit market could reach $3 trillion, with asset-backed lending, real estate, and infrastructure financing together making up 40% of private credit AUM.
- • Valuation transparency remains the central concern: private credit marks depend on manager discretion, with roughly 75% of PIK loans valued above 95 cents on the dollar by end-September, and one e-commerce company's loans marked anywhere from 65 to 84 cents by different managers, per Bloomberg.
- • Regulators are tightening scrutiny, including updated IPEV Guidelines in 2022, an FCA review of private market valuation, FSB recommendations on non-bank credit risk in December 2024, and ESMA's November 2024 proposal to bar amortized cost valuation for money market funds investing in private debt.
- • Rising rates after 2022, with the federal funds rate at 4.33% as of 28 March 2025, have pushed private debt toward fair value accounting and intensified calls for standardized valuation methodologies.
Summary
Private debt has emerged as a significant asset class in the years since the 2008 financial crisis, as post-crisis capital requirements reduced bank lending to riskier borrowers. Borrowers have accepted higher costs in exchange for customized terms, covenants, and collateral arrangements that non-bank lenders offer. According to a Pitchbook study published in Q1 2024, private debt fundraising grew from $116.1 billion in 2014 to a peak of $302.1 billion in 2021. The Alternative Credit Council, in collaboration with EY Luxembourg in its Financing the Economy report, estimates the global private credit market could reach $3 trillion.
The accounting treatment of these instruments has shifted with the rate cycle. Before 2022, most financial assets were measured at amortized cost under IFRS, with interest rates near zero. As inflation reached its highest level since 1980 in 2022, the Federal Open Market Committee raised the federal funds target rate to 525 basis points by September 2023. Rising rates increased the need for potential sales and the risk of losses, pushing valuations toward fair value and heightening scrutiny of transparency.
Valuation transparency is the central concern. Private credit marks often depend on fund manager discretion, unlike publicly traded securities. The source highlights growth in payment-in-kind loans, where borrowers defer interest until maturity. Approximately 75% of PIK loans were valued above 95 cents on the dollar by the end of September, a level the article argues is difficult to reconcile with lower public-market pricing for comparable loans. According to Bloomberg, managers also diverged on a single e-commerce company's loans, with some valuing them at 65 cents on the dollar and others at 84 cents.
Regulators have responded. The IPEV Guidelines were updated in 2022 to include private debt sections. IOSCO has emphasized governance and valuation practices, and the UK Financial Conduct Authority has opened a review of valuation in private markets. The Financial Stability Board's December 2024 report flagged non-bank financial intermediaries, which now account for nearly half of global financial assets, and called for better monitoring of non-bank credit risk and greater private disclosure. ESMA proposed in November 2024 that money market funds investing in private debt should not use amortized cost valuation. The Federal Reserve's effective federal funds rate stood at 4.33% as of 28 March 2025.
The ACC and EY Luxembourg report indicates most private credit managers plan to expand across mature and emerging strategies. Asset-backed lending, real estate, and infrastructure financing together represent 40% of private credit AUM, and Europe and Asia-Pacific are expected to grow as banks pull back. The article concludes that standardized valuation methodologies and greater transparency are essential to protect investors and maintain market stability.
The accounting treatment of these instruments has shifted with the rate cycle. Before 2022, most financial assets were measured at amortized cost under IFRS, with interest rates near zero. As inflation reached its highest level since 1980 in 2022, the Federal Open Market Committee raised the federal funds target rate to 525 basis points by September 2023. Rising rates increased the need for potential sales and the risk of losses, pushing valuations toward fair value and heightening scrutiny of transparency.
Valuation transparency is the central concern. Private credit marks often depend on fund manager discretion, unlike publicly traded securities. The source highlights growth in payment-in-kind loans, where borrowers defer interest until maturity. Approximately 75% of PIK loans were valued above 95 cents on the dollar by the end of September, a level the article argues is difficult to reconcile with lower public-market pricing for comparable loans. According to Bloomberg, managers also diverged on a single e-commerce company's loans, with some valuing them at 65 cents on the dollar and others at 84 cents.
Regulators have responded. The IPEV Guidelines were updated in 2022 to include private debt sections. IOSCO has emphasized governance and valuation practices, and the UK Financial Conduct Authority has opened a review of valuation in private markets. The Financial Stability Board's December 2024 report flagged non-bank financial intermediaries, which now account for nearly half of global financial assets, and called for better monitoring of non-bank credit risk and greater private disclosure. ESMA proposed in November 2024 that money market funds investing in private debt should not use amortized cost valuation. The Federal Reserve's effective federal funds rate stood at 4.33% as of 28 March 2025.
The ACC and EY Luxembourg report indicates most private credit managers plan to expand across mature and emerging strategies. Asset-backed lending, real estate, and infrastructure financing together represent 40% of private credit AUM, and Europe and Asia-Pacific are expected to grow as banks pull back. The article concludes that standardized valuation methodologies and greater transparency are essential to protect investors and maintain market stability.
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