Private credit has become a $1.5 trillion market, and the interesting part is who is lending alongside it. Banks that once saw these funds as rivals now co-invest with them or supply the leverage that lifts their returns.
The asset class dates to the 1980s. Its real rise came after the 2008 crisis, when Dodd-Frank and the Basel framework pushed banks out of much middle-market lending. Companies whose credit story or size did not suit a bank had few places to go. Private credit managers filled the gap, refinancing debt, funding acquisitions and keeping businesses trading. The pandemic and an uncertain macro backdrop cemented the funds’ reputation as nimble providers of capital through volatile markets.
Investors keep coming. According to a report by With Intelligence, direct lending took 50% of new limited-partner allocations in 2024, down from 58% in 2023, while specialty finance rose from 10% to 18%. Simple direct lending vehicles have turned into multi-strategy credit platforms with tailored risk and return, and a secondary market is growing in what was long an illiquid asset class.
Banks as partners
The Federal Reserve Bank of New York has suggested that banks and non-bank lenders evolved together, so it is better not to treat them as separate camps. Oaktree’s tie-up with Lloyds, worth up to £175 million to fund private equity takeovers and refinance upcoming maturities, is one example. The funds bring agility and tailored underwriting. The bank brings scale and infrastructure.
Where the risk moves
Structured finance may be the real test. One structure gaining ground in Europe is the synthetic risk transfer, which lets a bank keep lending directly while passing the credit risk to private credit funds. Deutsche Bank and European Central Bank data put volumes of SRT deals referencing performing loans at €155 billion in 2023, up from €120 billion in 2019.
Supporters say these deals spread risk more efficiently and make the system sturdier. Moody’s disagrees, at least in part. It has warned that the growing entanglement between large banks and private credit could become a “locus of contagion” in a future crisis.
Leverage is part of the picture too. In a survey by the Alternative Credit Council, 66% of private credit managers said they use it in their strategies. Regulators are also watching the growth of retail and lightly informed investors entering through ETFs and semi-liquid vehicles. The funds’ defenders point to the plumbing: longer-dated capital, tighter relationships between lender and borrower, and covenants that bite when needed.
