New Strategies and Structures Drive Growth of Private Credit
October 2025
Private credit assets under management reached $1.5tn at the start of 2024, up 50% in just four years1. Fueled by both the increased depth and breadth of the asset class, this growth is set to continue. On the one hand, private credit managers are expanding into new strategies, and on the other, they are creating products that appeal to new categories of investors, drawing untapped pools of capital into the industry.
Asset-Based Finance
Direct lending remains the single biggest private credit strategy today, having grown from 9% to 36% of the overall market within the past 15 years2. However, other even larger parts of the credit ecosystem are now being embraced by private lenders, most notably asset-based finance (“ABF”). In fact, non-bank ABF is already believed to have exceeded $6tn3.
Recent moves into the space include Blue Owl Capital’s acquisition of Atalaya Capital Management, expanding its asset-based finance capabilities; a debut ABF fund for Oaktree Capital, with a $2bn target; the launch of the Apollo Asset Backed Credit Company; TCW Group’s creation of an ABF business with capital commitments of over $1bn, and Partners Group’s launch of a multi-sector ABF Royalties platform.
Direct Lending’s Rise Over
the Past 15 Years
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Source: Morgan Stanley
Asset-Based Finance
Direct lending remains the single biggest private credit strategy today, having grown from 9% to 36% of the overall market within the past 15 years2. However, other even larger parts of the credit ecosystem are now being embraced by private lenders, most notably asset-based finance (“ABF”). In fact, non-bank ABF is already believed to have exceeded $6tn3.
Recent moves into the space include Blue Owl Capital’s acquisition of Atalaya Capital Management, expanding its asset-based finance capabilities; a debut ABF fund for Oaktree Capital, with a $2bn target; the launch of the Apollo Asset Backed Credit Company; TCW Group’s creation of an ABF business with capital commitments of over $1bn, and Partners Group’s launch of a multi-sector ABF Royalties platform.
Direct Lending’s
Rise Over
the Past 15 Years
Click to find out more
Source: Morgan Stanley
Five of the top 30 private debt managers in the U.S. launched their first ABF-dedicated funds last year, and a Preqin survey reveals that 58% of private credit managers plan to prioritize an ABF strategy in 20254.
Just as in the direct lending market, this opportunity was sparked by the retrenchment of banks, which are prioritizing fee-based and capital-light activities that require less regulatory capital. The higher interest rate environment has been an accelerator, further paring back bank appetite.
Tech advancements have also had an impact, making it easier to facilitate ABF outside of a banking network. The growing maturity of the direct lending market may play a role, too. As fundraising becomes increasingly competitive and fees come under pressure, managers are looking to expand into more specialist strategies.
Meanwhile, ABF is proving to be a popular diversifier with investors as well. ABF portfolios are highly granular, often comprising hundreds or thousands of line items, with each loan being comparatively small. The loans are also amortizing in nature, meaning they de-risk quickly and have strong structural protections.
However, there are a number of considerations that managers contemplating an expansion into ABF need to take into account. This is a space that requires robust systems and specialist skills around underwriting, asset valuation, and collateral management. Some of the private credit firms that have made the move into ABF to date, such as Blue Owl, have bolstered their expertise with the acquisitions of whole businesses. Others, such as Oaktree Capital, have chosen to recruit at the individual level.
In addition, ABF covers a very wide spectrum of strategies from consumer finance to commercial finance, contractual finance, and hard assets. The accompanying risk-return profiles vary significantly, which can make it hard to accommodate ABF within a traditional comingled fund. Some managers are responding by taking an SMA or fund of one approach, tailoring strategies to the specific needs of investors. This can be particularly effective with higher-returning ABF strategies, but for lower-returning, investment-grade strategies, the costs may prove prohibitive.
Five of the top 30 private debt managers in the U.S. launched their first ABF-dedicated funds last year, and a Preqin survey reveals that 58% of private credit managers plan to prioritize an ABF strategy in 20254.
Just as in the direct lending market, this opportunity was sparked by the retrenchment of banks, which are prioritizing fee-based and capital-light activities that require less regulatory capital. The higher interest rate environment has been an accelerator, further paring back bank appetite.
Tech advancements have also had an impact, making it easier to facilitate ABF outside of a banking network. The growing maturity of the direct lending market may play a role, too. As fundraising becomes increasingly competitive and fees come under pressure, managers are looking to expand into more specialist strategies.
Meanwhile, ABF is proving to be a popular diversifier with investors as well. ABF portfolios are highly granular, often comprising hundreds or thousands of line items, with each loan being comparatively small. The loans are also amortizing in nature, meaning they de-risk quickly and have strong structural protections.
However, there are a number of considerations that managers contemplating an expansion into ABF need to take into account. This is a space that requires robust systems and specialist skills around underwriting, asset valuation, and collateral management. Some of the private credit firms that have made the move into ABF to date, such as Blue Owl, have bolstered their expertise with the acquisitions of whole businesses. Others, such as Oaktree Capital, have chosen to recruit at the individual level.
In addition, ABF covers a very wide spectrum of strategies from consumer finance to commercial finance, contractual finance, and hard assets. The accompanying risk-return profiles vary significantly, which can make it hard to accommodate ABF within a traditional comingled fund. Some managers are responding by taking an SMA or fund of one approach, tailoring strategies to the specific needs of investors. This can be particularly effective with higher-returning ABF strategies, but for lower-returning, investment-grade strategies, the costs may prove prohibitive.
Outlook and Appetite of Top 30 Insurers to
Increase Private Credit Allocations
Hover to find out more
Source: Moody’s Ratings and PitchBook, 2024
Outlook and Appetite of Top 30 Insurers to
Increase Private Credit Allocations
Click to find out more
Source: Moody’s Ratings and PitchBook, 2024
Mezzanine
Mezzanine finance is not a new product for private credit managers, of course, pioneered, as it was, in the nineties. While mezzanine has largely been overshadowed by the rapid rise of unitranche in recent years, we do appear to be experiencing something of a resurgence of interest.
This is being fueled by mezzanine’s flexibility at a time when borrowers are demanding customized financing that other sources of capital, including public markets, private equity, and senior direct lenders, can’t supply.
Private credit managers are using mezzanine funds to pursue a wide range of deals across the capital structure, and the term mezzanine has come to encompass anything that does not fit neatly in the traditional first lien, senior direct lending, or private equity bucket.
Mezzanine is being used to participate in direct lending as the lead lender, for example, in syndicated debt deals in a passive role, or in structured equity-type situations. It is also being used to finance dividend recaps, allowing sponsors to return much-needed capital to investors.
Meanwhile, as with the rise of ABF, the broadening of the mezzanine story is also a response to LP demand, as investors seek diversification away from the risk-return profile of their direct lending exposure.
Mezzanine
Mezzanine finance is not a new product for private credit managers, of course, pioneered, as it was, in the nineties. While mezzanine has largely been overshadowed by the rapid rise of unitranche in recent years, we do appear to be experiencing something of a resurgence of interest.
This is being fueled by mezzanine’s flexibility at a time when borrowers are demanding customized financing that other sources of capital, including public markets, private equity, and senior direct lenders, can’t supply.
Private credit managers are using mezzanine funds to pursue a wide range of deals across the capital structure, and the term mezzanine has come to encompass anything that does not fit neatly in the traditional first lien, senior direct lending, or private equity bucket.
Mezzanine is being used to participate in direct lending as the lead lender, for example, in syndicated debt deals in a passive role, or in structured equity-type situations. It is also being used to finance dividend recaps, allowing sponsors to return much-needed capital to investors.
Meanwhile, as with the rise of ABF, the broadening of the mezzanine story is also a response to LP demand, as investors seek diversification away from the risk-return profile of their direct lending exposure.
Private Wealth and Insurance
In addition to the launch of new strategies or the broadening of existing ones, the growth of the private credit industry is being driven by products designed to appeal to new investor groups.
The evidence of private credit’s push into the private wealth space is everywhere. In the past 12 months, TPG, Blue Owl, JP Morgan Asset Management, Blackstone, Ares, KKR, and Apollo have all launched private credit interval funds, offering investors periodic liquidity and therefore opening up the asset class to individuals.
Many of these funds are ‘40 Act-registered, meaning the individuals involved do not need to be qualified purchasers, further expanding the market opportunity.
Global Alternatives Industry Forecast to Reach $30tn by 2030
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Source: Preqin
Private Wealth and Insurance
In addition to the launch of new strategies or the broadening of existing ones, the growth of the private credit industry is being driven by products designed to appeal to new investor groups.
The evidence of private credit’s push into the private wealth space is everywhere. In the past 12 months, TPG, Blue Owl, JP Morgan Asset Management, Blackstone, Ares, KKR, and Apollo have all launched private credit interval funds, offering investors periodic liquidity and therefore opening up the asset class to individuals.
Many of these funds are ‘40 Act-registered, meaning the individuals involved do not need to be qualified purchasers, further expanding the market opportunity.
Global Alternatives Industry Forecast to Reach $30tn by 2030
Click to find out more
Source: Preqin
Not only are private credit managers – and private markets firms more broadly – targeting wealthy individuals, but they are also courting the $30tn insurance industry. Taking Apollo’s early lead, Blackstone, KKR, Ares, Brookfield, and Carlyle have all developed insurance strategies.
As private credit managers continue to expand their remit into new investment strategies, driven by both the demands of borrowers and investors, and as they continue to expand their product range to appeal to new and vast pools of capital, this asset class is poised for continued growth. Forecasts vary, but according to Preqin, the global private credit market could exceed $2.6tn within the next four years5.
For the watchful private credit manager, the market is flush with opportunities for expansion and new investment. In some cases, known assets – like mezzanine finance – are benefiting from fresh approaches. In other areas, new fields like private wealth are rising to the top. What will determine the success of any investment will be the imagination, creativity, and agility of the key people involved.
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