In a recent global outlook, Moody’s said private equity sponsors are expected to drive increased deal activity in 2025, providing opportunities for direct lenders to deploy $300 billion of outstanding dry powder.
Additionally, leveraged buyout activity, which gained momentum late last year, is anticipated to continue alongside refinancing opportunities.
Moody’s also highlighted growing interest from alternative asset managers in the asset-based finance (ABF) market, noting that while direct lending makes up the biggest share of alternative asset management’s private credit activity, ABF has gained importance as banks step away from riskier credit exposures.
“We expect this momentum to continue,” it said. “Over the next five years, we expect at least US$1 trillion in specialty finance private credit ABF origination.”
ABF’s rapid migrating to private credit is being driven by increasing bank partnerships, the ratings agency said, noting that this trend accelerated in 2024, with at least nine significant alliances formed between banks and private credit lenders.
“Partnerships will continue in 2025, but the large banks will also make it a strategic priority to further scale up the private credit investment capabilities within their asset management businesses,” Moody’s said, highlighting Goldman Sachs as an example following the investment bank’s recently announced move to deepen its involvement in private credit.
Beyond ABF opportunities, private credit managers are also angling for greater penetration of the broader retail market.
Still a vast and largely untapped investor base, Moody’s said retail private debt assets under management (AUM) has been accelerating and, while still less than 20 per cent of total private debt AUM, is growing more quickly than institutional AUM.
“To access this newer base, managers are coming to market with evergreen funds while some are rolling out first-ever private credit exchange-traded funds,” it noted.
The ratings agency also expects synergies between insurance companies and alternative managers to flourish in 2025, adding to the sector’s growth.
“Insurers will continue to shift their investment portfolios away from public investment grade assets to investment grade private ABF assets to enhance portfolio returns. Many will do this through partnerships with private credit managers who have greater expertise in this area,” it said.
“We expect the synergy between insurance companies and alternative asset managers will only strengthen, propelled by the growing use of asset origination platforms to generate assets.”
Moody’s also expects more consolidation in the private markets sector as greater scale and a broader set of investment capabilities become more essential as capital demand accelerates across the global economy.
“The big will continue to get bigger – leading to more consolidation in the sector,” Moody’s said.
When it comes to which areas of private markets will see the most growth, Moody’s predicted alternative asset managers will continue to focus more intently on opportunities in private credit versus other asset classes such as private equity or real estate, for which investment returns and fundraising prospects have been more difficult of late.
Turning to opacity risk, a critique often levelled at the sector by regulators, Moody’s said it will persist.
The agency warned that “a negative turn in the economic environment would likely test the resilience of the private credit market and its growth aspirations”.
“Early identification of asset performance issues remains difficult given limitations on public reporting requirements,” it added.
