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The private credit and distressed debt landscape is undergoing a profound transformation. As private credit approaches the $3 trillion mark out of the $25 trillion alternative investment market, its role has expanded from a niche financing option to a major institutional asset class. This shift has brought new challenges, opportunities, and strategies for participants in the financial ecosystem.
In this article, we’ll explore the key insights from a recent expert panel discussion on navigating private credit and distressed debt, highlighting the evolution of the market, the role of technology, the impact of global uncertainty, and the importance of strategic partnerships with banks and asset allocators.
Over the past 15 years, private credit has evolved from a secondary financing tool tied to private equity deals to a standalone asset class with a strong institutional reputation. The market’s recent growth has been particularly rapid, driven by key inflection points such as the 2008 financial crisis, regulatory shifts like Dodd-Frank and Basel reforms, and the retrenchment of traditional banks from certain lending activities.
According to experts, this maturation phase of private credit represents a critical moment for the industry. While private credit remains an attractive option for businesses and investors, it is navigating its first full economic cycle, testing its resilience in a volatile market environment.
One of the most significant changes has been the reallocation of lending responsibilities. Post-financial crisis regulations forced banks to reduce their exposure to riskier loans, leading asset managers to step in. However, banks have not disappeared but instead adapted, becoming partners rather than competitors to private credit firms. As one panelist noted, "Banks originate well and have local networks, but asset managers are better positioned to hold the capital."
Strategic partnerships between banks and asset managers are becoming increasingly common, especially in Europe, where disintermediation has been slower compared to the U.S. Collaborations leverage the strengths of both parties: banks focus on origination and servicing, while asset managers provide the long-term capital needed to sustain lending.
Experts on the panel emphasized the importance of resilience in private credit portfolios. Unlike before the global financial crisis, current underwriting standards prioritize lower leverage and better documentation. With average loan-to-value ratios around 40%, private credit investors now have a significant cushion against potential downturns. This ensures that even if valuations decline, lenders remain well-protected.
Economic uncertainty, geopolitical tensions, and rising interest rates have created dislocation across global markets. Such environments often generate opportunities for agile capital to step in where traditional financing dries up. However, success in these conditions depends on strong underwriting, selective deal-making, and a focus on sectors with resilient cash flows, such as healthcare, software, and business services.
Artificial intelligence (AI) is increasingly becoming a critical tool for lenders and asset managers. By analyzing vast amounts of data, AI enables investment professionals to better understand the risks associated with underlying businesses, anticipate market trends, and optimize portfolio management. One panelist noted, "If you don’t adopt technology in the next three to five years, you won’t be able to compete in this market."
AI tools like OpenAI’s ChatGPT and Microsoft Copilot allow firms to perform scenario analyses, assess sensitivity to factors like tariff changes or interest rate spikes, and develop informed perspectives on their portfolios. This technological edge is not just a competitive advantage - it’s becoming a necessity for survival.
Beyond risk management, AI also boosts operational efficiency. By automating repetitive tasks such as credit paper preparation, AI frees up analysts to focus on higher-value activities, such as meeting borrowers and assessing deals in person. This dual focus on better data insights and improved productivity positions firms to respond quickly to market opportunities.
Geopolitical tensions and protectionist trade policies have introduced new layers of uncertainty to the global financial system. However, private credit investors are generally insulated from the first-order impacts of tariffs and trade wars, as portfolios are often concentrated in domestic sectors like software and healthcare. The bigger risk lies in how prolonged uncertainty dampens business investment and hiring, potentially slowing economic growth.
In times of uncertainty, discipline and agility are paramount. Firms with flexible capital and strong underwriting standards are poised to capitalize on opportunities as they emerge. For example, during the COVID-19 pandemic, lenders with capacity were able to step into deals when banks were preoccupied with managing their existing exposures. This ability to act quickly in dislocated markets underscores the importance of maintaining a strong liquidity position.
Historically, secondary sales in private credit were seen as a last resort, used only in times of distress. However, today’s secondary market is a sophisticated portfolio management tool that allows investors to manage liquidity, rebalance exposures, and access private credit opportunities more quickly. As competition in this market grows, the discounts associated with secondary sales are likely to narrow, benefiting both buyers and sellers.
The private credit and distressed debt market is at a crossroads, transitioning from rapid growth to a phase of maturity. While challenges such as geopolitical uncertainty, rising interest rates, and evolving regulations remain, the industry’s focus on resilience, innovation, and collaboration positions it well for sustainable success. By adopting cutting-edge technology, building strategic partnerships, and maintaining discipline in underwriting, professionals in this space can navigate the current complexities and seize emerging opportunities.
The future of private credit is not just about growth - it’s about adaptability, precision, and a commitment to long-term value creation. For professionals in the financial and debt trading industries, staying ahead will require not only mastering the fundamentals but also embracing the transformative forces shaping the market today.
Source: "Private Credit: Innovation, Strategy, and Distressed Debt in a Maturing Market | Global Conference" - Milken Institute, YouTube, Sep 2, 2025 - https://www.youtube.com/watch?v=6KeChWMQsRs
Use: Embedded for reference. Brief quotes used for commentary/review.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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