Politicians to Take Notice of Private Debt in 2025

In 2025, for large corporates, mid-sized businesses and ordinary investors, there will be a great deal of interest in what the second Trump administration means for the US and global economy as a whole. There is understandably an immediate focus on which policy levers may be pulled when it comes to tax and with the price of Bitcoin at a record high, the regulation of digital assets and stablecoins is top of mind.

But what about private credit markets? While many within the industry have witnessed exponential growth over the past decade, 2024 has notably elevated its external profile. This raises the question: what should we expect in the next 12 months?

Firstly, it’s important to remember that the private credit asset class has proven its worth and resilience throughout multiple crises. Most notably, the financial crisis in 2008 and also more recently through COVID, where defaults were extremely exceptional. However, managers must remain vigilant against economic headwinds, including rising capital costs and geopolitical risk. We all know how delicate global supply chains are and there are natural ramifications for potential conflicts and trade wars on access to funding, investor sentiment and borrower appetite.

That being said, our expectation is that direct lending growth will continue to accelerate, fueled by increasing middle-market leveraged buyout activity as borrowing conditions stabilize. On a positive note, the asset class continues to attract more money (increasingly from retail sources of capital). However, by extension, that competition, alongside likely cuts to interest rates, does place a pressure on returns and a continuation on high quality credit.

AI and technology will therefore play an important role. The firms that succeed will be those that can pivot quickly to adopt data-driven technologies for underwriting and valuation accuracy, ensuring operational scalability and compliance in a rapidly evolving regulatory landscape. Additionally, we should expect to see private credit managers facing more frequent and transparent valuations. As a result, a embracing platforms that streamline the valuation process will be critical to scaling effectively in this environment.

Which perhaps takes us back to the start of this piece. When President Trump was last in office, the size of the global market represented around $1 trillion. It is estimated to grow to $2.8 trillion by 2028. One begins to see the sense of scale that private credit now has within the global market. With power comes responsibility.

Earlier this year, Nikhil Rathi, the UK’s most senior financial regulator, highlighted the importance of diverse sources of funding and that there is no desire to restrict private markets, which are currently unregulated. However, it is worth reading his speech in full. It’s definitely not a ‘we’re coming to get you message’ but there’s definitely a greater desire to put their heads under the bonnet to understand the market much better. The UK is a great example of a credit market, once dominated by large banks, that is now increasingly becoming a space where direct funds play an important role within the ecosystem.

If regulators begin to smell systemic risk, especially if there is retail and bank depositor capital at risk, managers need to be very sharp in how they monitor and value their portfolios.

Palak Patel is a Managing Director in Kroll Digital Solutions’ Private Capital Markets practice, leading commercialization and product strategy.

Ryan McNelley is the Managing Director and EMEA Portfolio Valuation Leader at Kroll’s London office, specializing in advising alternative investment fund managers across Europe and the US.

This article was orginally published in Private Debt Investor.