Experts forecast further growth in private credit market in 2025

Private credit is set to continue its strong growth trajectory in 2025 according to experts in the sector.

Private credit markets will continue to grow in 2025. Pic: Getty Images

• Private credit to continue strong growth trajectory in 2025, experts say

• Pallas Capital says established private credit managers are attracting institutional investors 

• The Finexia Childcare Income Fund has reached $100m target and is looking to double in 2025 

Private credit, also known as private debt, has evolved as a significant asset class and is set to continue its strong growth trajectory in 2025, according to experts in the sector

The Reserve Bank of Australia has estimated that the Australian private credit market has grown to around $40 billion,  which is ~2.5% of total business debt as stricter lending controls by traditional banks see smaller and medium-sized businesses seek other sources of finance.

Investment data analyst Preqin forecasts private credit assets to grow to $US2.3 trillion globally by 2027, up from US$1.2 trillion in 2021, while the International Monetary Fund said private credit has evolved into another major asset class.

Private credit specialist Pallas Capital’s executive director and head of distribution Craig Bannister told Stockhead the Asia-Pacific private credit market was expanding, with Australia leading this trend in 2024 due to continuing high yields from elevated interest rates.

Pallas specialises in lending to the commercial real estate sector with preferred asset locations metropolitan capital cities.

"Our origination figures at Pallas will increase to approximately $2.5bn in 2025, up from around $1.5 billion in 2024," he said.

"As interest rates are projected to decline in 2025, transaction volumes in direct lending are expected to remain strong, especially as banks retreat from middle market leveraged lending.

"Pallas has a strong focus in lending to qualified borrowers in the mid-market $5-$30m loan space."

Attracting institutional investors

Bannister said the outlook for private credit in 2025 was favourable, with established investment managers attracting institutional investors looking for appealing risk-reward dynamics in this asset class.

"We have personally seen this in 2024 with Pallas closing institutional lending facilities with Goldmans, Ares and Westpac which total approximately $1bn and we have two more institutional lending facilities in the pipeline, with one expected to close before Christmas," he said.

Real estate debt was anticipated to perform well in 2025, Bannister predicted, with conservative valuations and strong occupier markets supporting debt affordability.

"If we get the forecast interest rate cuts early in 2025 then the commercial property market will benefit as a whole, as valuations – which have taken a hit over the last few years as interest rates rose – will bounce back once interest rates start to trend lower," he said.

"Despite potential risks, conservative lending strategies are expected to thrive in both direct lending and real estate debt markets.

"Senior debt lending at conservative valuations of ~65% will offer attractive risk adjusted yield opportunities with low probability of capital impairments."

'Attractive investment proposition'

Tanarra Credit Partners managing director Peter Szekely recently told The Australian that Australia's private credit market was set to reach new highs in 2025 on the back of volatile share markets, with investors being offered attractive yields.

"As interest rates have risen in recent years, so too have the yields on floating-rate loans, which has made private credit an attractive investment proposition compared to other asset classes,” Szekely said.

"While the Australian private credit market is not entirely immune to global economic forces, it exhibits a degree of insulation from the volatility experienced in larger markets like the US.

"This stability, coupled with the attractive yields offered by private credit, makes it a compelling investment proposition in the current environment."

Finexia targets further growth in 2025

Private credit lender Finexia Financial Group (ASX:FNX) is primarily focused on markets and opportunities that major banks have traditionally dominated but have recently abandoned and has carved out a niche in the childcare sector.

CEO and director Patrick Bell told Stockhead the Finexia Childcare Income Fund was growing rapidly.

"We've reached our target of $100 million in the Finexia Childcare Income Fund and our target for 2025 is to double this figure," Bell said.

"Over the past few years, we’ve carved out a strong position in the childcare sector, which we’re passionate about and completely focused upon.

"Specialising in this sector gives us a distinct competitive advantage by improving credit risk outcomes, resulting in better returns for our investors as well as a more nuanced risk profile for our wholesale funders."

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

At Stockhead, we tell it like it is. While Pallas Capital and Finexia Financial Group are Stockhead advertisers, the companies did not sponsor this article.

Originally published as Experts forecast further growth in private credit market in 2025