McKinsey Report Highlights Key Aspects of Private Credit

A recent McKinsey report titled “The next era of private credit” highlights existing and emerging issues regarding the rising use of private credit in the financial services ecosystem. The report notes that private credit has been one of the fastest growing asset classes over the past 15 years. The report notes four major trends that will define the next era of private credit:

• Expansion of private credit into a broader array of assets
• Rise of ecosystem partnerships and open-architecture business models
• Amplified advantages of scale for competitive differentiation
• Increased focus on technology to boost scale and performance

One interesting implication for asset managers the report highlights, is that managers will focus on “diversifying capital bases to include longer-duration or lower-return threshold capital pools, enabling broader participation across the risk-return spectrum.” This will likely include these assets appearing in more registered fund products. The report emphasizes that while private credit is here to stay, “careful monitoring of short-term risks is still necessary, particularly in the event of an economic downturn in which a range of loans may become stressed or distressed.”

Click here to view the McKinsey report on Private Credit.