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Private Credit’s Popularity Surges, Even as Risks Rise
At a time when headlines warn of weakening covenants and excessive capital for the number of deals, private credit has never been more popular.
That tension between rapid growth and rising scrutiny frames our experts’ thinking as we support asset owners navigating an asset class that is expanding fast, but not evenly.
Growing Demand From Institutional Investors
Private credit’s appeal has broadened dramatically, especially among insurers. Geoff Bauer, UK Investment Non-Pension Fund Client Leader, notes:
Private credit has been of interest to the full spectrum of our client base for some time, but it’s even more so now.Certainly with insurers, private credit dominates the conversation, and we expect that to continue.”
In fact, private credit holdings among US life and annuity providers are estimated to have doubled in the past decade, reaching around $2 trillion – some 20% of the industry’s total assets. Meanwhile, more than half of insurers plan to increase their allocations in 2025.
“Some of these clients are very sophisticated already… others are at various points on that spectrum,” Bauer says.
“Some are thinking of making their first allocations, and that isn’t as easy as it sounds. They still need to get approval from their investment committees, and that can take time. But nonetheless, the interest is there and increasing.”
Beyond insurers, demand is also rising among UK defined benefit pension schemes, many of which are planning to run on rather than pursue buyout. “Private credit can play a very important role in run-on portfolios, meeting a scheme’s liabilities,” Bauer says. Endowments and non-profits, too, are proving to be natural adopters: long-term investors that can tolerate reduced liquidity while benefiting from yield pickup and mission-aligned opportunities.
A More Nuanced Risk Landscape
While demand is strong, private credit risk is in the spotlight. In particular, concerns flagged by the International Monetary Fund (IMF) around rapid industry growth, weaker covenants and pressure to deploy capital pose fair questions.
“Typically, our clients understand that many of these issues are driven by fraud or abuse of lending standards, rather than a private credit landscape that is without opportunity,” Bauer says.
“Still, I expect we’ll see greater dispersion in private credit returns, which makes manager selection more important than ever.”
While understanding private credit’s challenges is important, the drivers of the opportunity remain unchanged.
Think about why there’s been such an opportunity set in private credit: bank disintermediation and pulling back from lending,” says Alison Trusty, Co-Head of Fixed Income for the UK and EMEA. “We don’t see that the banks are coming back, and that’s creating some really interesting opportunities for clients and asset managers to be that provider of finance.Manager Selection Risks
As private credit returns diverge, manager selection is especially critical.
Trusty notes consolidation among private markets managers, which raises questions around team stability. “Team leadership is a significant focus when Aon is conducting manager due diligence,” she says. “Consolidation gives us a lot to think about from a succession planning perspective. It’s not inherently negative, but it gives us pause for thought as we do want to understand the succession plans in place.”
Bauer, meanwhile, points to a red flag that can sound deceptively positive: “Often we hear from managers that they’ve never had a default, which can be initially reassuring. But consider: what would they do if they did have to go through that problem-solving process? How can they evidence something they believe they may never have to do?”
The private credit picture is one of robust demand, expanding opportunity sets and rising complexity. As the market matures and dispersion grows, we are helping our clients navigate risk and manager diligence with greater precision.