[Abstract]
Private credit has grown from a niche financing alternative into a structurally embedded pillar of the global financial system, estimated at between $1.3 and $1.6 trillion in the United States alone and expanding at a comparable pace in Europe. This paper offers a rigorous yet accessible examination of the asset class, beginning with its fundamental mechanics: the instruments and strategies that define it, the vehicles through which capital is deployed, and its structural relationship with private equity as a complementary rather than competing source of financing.
The analysis reconstructs the anatomy of a representative mid-market leveraged buyout to illustrate how private credit transactions are structured, priced and protected through bespoke covenant packages, before turning to a comparative assessment of the United States and European markets. While the US remains the dominant force in volume terms, Europe is displaying unexpected resilience and faster relative growth, shaped by distinct legal frameworks, fragmented national jurisdictions and a growing wave of American capital seeking diversification across the Atlantic.
The paper’s central focus, however, is the stress now visible in the US market. Drawing on data covering redemption pressure at major direct lending funds, rising interest coverage strain, growing reliance on Payment-in-Kind structures and mounting concentration in software and technology-adjacent sectors threatened by AI disruption, the report assesses whether private credit is undergoing its first genuine system-wide test since the asset class reached systemic scale. Two detailed case studies, Blue Owl Capital and Ares Management, ground this analysis in the operating realities of the sector’s leading lenders, contrasting a concentrated sponsor-oriented model with a scale-based origination platform.
The conclusion argues that private credit offers borrowers and investors a genuine and durable value proposition, but one whose long-term legitimacy will depend on whether continued growth can be reconciled with transparency, disciplined underwriting and appropriate investor protection as the credit cycle fully turns.
Authors: Benedetta Ambrosini, Neda Jagodic, Marcello Siverio
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