As demand for non-bank capital increases and yields remain compelling, private credit continues to expand as an alternative asset class. But not all private credit managers are created equal. In private credit, success requires a deep origination network, a conservative approach to structuring and risk management, and the scale and experience to uncover differentiated opportunities.
Private credit has grown rapidly, taking on an increasingly crucial role in institutional portfolios. With banks stepping back from leveraged lending, private credit’s global AUM has quadrupled over the previous 10 years, and is forecast to climb further to $2.8 trillion by 20281. Most of this growth has occurred in direct lending, which comprised 44% of all private credit in North America by the end of 2023, up from 15% in 20082.
Accessing the most compelling private credit opportunities starts with broad, systematic sourcing. Non-sponsored companies, in particular, require higher‑touch engagement. Identifying a select number of high‑quality loans often demands outreach to hundreds or even thousands of middle‑market businesses across geographies. Managers with a boots-on-the-ground approach to deal sourcing and strong relationships with borrowers will have a competitive edge.
The middle market, typically defined as companies with $10 million to $1 billion in annual revenue, can offer especially attractive characteristics: more conservative leverage levels, robust structural protections, and relationship‑driven dynamics. Incorporating non-sponsored lending can further enhance portfolio diversification and risk‑adjusted returns through features such as lower leverage, yield premiums, and stronger covenants.
Read on for insights into how these asset class dynamics translate into PGIM’s sourcing approach, middle-market segment focus and conservative credit posture.
1 Source: Preqin. (2024, April 8). Private Debt's Rapid Growth Merits Closer Scrutiny, IMF Says. https://www.preqin.com/news/private-debts-rapid-growth-merits-closer-scrutiny-imf-says. Accessed December 2024. Forecasts are not guaranteed and may not be a reliable indicator of future results.
2 Source: Preqin. (2024, March 20). North America Is Consolidating Alternative Assets as Region Holds Almost Two-Thirds of Global AUM - Preqin Reports. https://www.globenewswire.com/news-release/2024/03/20/2849698/0/en/North-America-is-consolidating-alternative-assets-as-region-holds-almost-two-thirds-of-global-AUM-Preqin-reports.html. Accessed December 2024.
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