2025: What is the outlook for the private debt market?

Private debt continues to establish itself as a popular alternative for investors seeking yield and diversification. As banks reduce their exposure to unlisted assets, and flexibility becomes a major asset, what opportunities and trends will we see in 2025?

The private debt market is enjoying sustained growth, driven by favorable trends and growing investor interest. Estimated at $1,500 billion at the start of 2024, it should reach $2,600 billion by 2029 (1), representing annual growth of around 10%. This momentum is based on several factors:

- A record level of capital: in 2024, private equity funds have accumulated a record $1.600 billion of capital to invest (1). This volume of capital should generate numerous opportunities for private debt funds

- A flexible, innovative alternative to traditional financing: with bank financing being cut back as a result of Basel III requirements, private debt is emerging as an essential financing solution. At the beginning of 2024, private debt funds accounted for over 80% of loans granted as part of LBO deals in the US midmarket, compared with 36% in 2014 (3).

- An increase in external growth operations: bolt-on acquisitions are an increasingly important lever in value creation for private equity managers. In Europe, 55% of private equity activity came from such deals in the first quarter of 2024 (2).

In an environment marked by higher interest rates, private debt should offer attractive returns, estimated on average at 12% between 2023 and 2029 (1), with even higher prospects for debt linked to complex situations.

Growing interest among investors, including retail investors

According to a survey conducted by Preqin in 2023, over 50% of institutional investors said they wanted to increase their allocation to private debt. Although long reserved for these investors, private debt is now attracting interest from retail investors looking for diversification and attractive returns. There are several reasons for this craze.

Firstly, private debt offers competitive potential returns. Funds specializing in this area generally generate higher returns than government bonds or listed companies. However, this yield premium compensates for the illiquidity and increased risk associated with these investments.

Secondly, investors benefit from better protection than equity. Indeed, as creditors, they occupy a priority position in a company's capital structure. This guarantees them priority repayment over shareholders in the event of default or liquidation.

Moreover, investing in private debt provides significant portfolio diversification. This asset class offers varied geographic and sector exposure, a particularly valuable asset in uncertain market environments.

In addition, private debt funds provide direct access to the real economy. By participating in the financing of SMEs, investors support economic growth and employment, while giving a tangible dimension to their investments.

Finally, these investments offer protection against inflation. Private debt loans are often variable-rate, which is an advantage in the face of inflation and interest-rate rises, unlike fixed-rate bonds.

Why invest in 2025?

The private debt market in 2025 offers a unique combination of high yield, diversification and flexibility. It plays a strategic role in financing growth sectors and companies.

With a favorable regulatory environment and increased opportunities, private debt represents an ideal solution for gaining exposure to innovative assets while limiting risk.

(1) Preqin, Future of Alternatives 2029 Report, December 2024
(2) Mergermarket, sample taking into account deals over €90m led by LBO funds
(3) Bain & Company, Global Private Equity Report 2024