The global private credit industry has grown rapidly in the past few years, with funds estimated at $2 trillion to $3 trillion. The trend is likely to continue in 2025, helped by sustained investor appetite for private debt, along with an easing in interest rates.

While much has been said about the increased competition between traditional lenders and private credit funds, there is a significant opportunity for a mutually beneficial hybrid model. In the last 12-18 months, we have seen more formal joint ventures and partnerships forming between the two. We anticipate more such collaborative efforts in the next year, expanding revenue growth opportunities for traditional lenders.

Private credit: Growth and risks

Tighter oversight of banks by central banks and national regulators since the global financial crisis (particularly the focus on lending requirements) has forced them to take a more conservative approach to credit, leading to greater demand for private credit in deal areas such as leveraged buyouts. It is unlikely that private credit funds will fall under similarly strong regulatory scrutiny in the near term, thus posing a low risk to their continued expansion.

Recent news flow shows the private credit market is booming, despite a challenging year for businesses facing elevated interest rates. Blackstone’s main private credit fund raised a combined $1.5 billion via multiple offerings in a single day earlier this month, while private capital group Apollo Global Management said in October it aims to more than double in size over the next five years.

There may be regional nuances to private credit’s growth story in the next year. With a change in the U.S. administration, the direction of travel there may slow down or reverse. However, deal volumes in Europe and the U.K. will likely continue to increase, adding to a strong 2024. European private debt deal volume hit a record high in the second quarter of this year, with deal numbers more than doubling between the first and the second quarters.

A shift towards collaboration

While regulations make it challenging for banks to compete with private credit offerings directly, a hybrid structure utilising the best of both worlds, traditional and private lenders, will expand the scope for bank lending opportunities.

Banks can partner with private funds via fee-based models, harnessing the size and scale of their long-established distribution networks for greater outreach. Through such collaborations, banks can still service the loans, allowing them to not just hold on to client relationships, but deepen and enrich them with a wider array of offerings, while strengthening customer retention.

Conclusion

After a period of meteoric growth for the private credit market, new models of collaboration and cooperation with traditional banks are emerging, and private credit deal volumes likely to continue rising in 2025, this shift in approach will create more exciting opportunities for growth and mutual benefits between private credit funds and traditional lenders.

David Edmonds joins fellow experts on the FT Live Global Banking Summit Mainstage to discuss private credit’s evolving relationship with traditional finance.