The private debt market is at a critical juncture. As banks steadily withdraw from lending, private debt is stepping in to fill the gap. The segment, now approaching USD 2 trillion globally, is expected to reach USD 3.5 trillion by 2028, according to Amundi Investment Institute. “Private debt is set for a phase of accelerated growth,” says Jean-Baptiste Berthon, Senior Investment Strategist at Amundi. “But scaling up also brings new challenges that must not be underestimated.”
Why is private debt attracting so much attention?
Private debt offers investors attractive returns thanks to an illiquidity premium and, in many cases, a complexity premium. It typically finances mid-market companies with limited access to capital markets, allowing lenders to negotiate favorable terms. Moreover, many loans are floating-rate with floors, providing a hedge against rising interest rates and inflation.
“For institutional investors such as pension funds and insurers, private debt is a natural diversifier,” notes Thierry Vallière, Global Head of Private Debt at Amundi. “The stable cash flows fit seamlessly into long-term portfolios.”
Public vs. private
Despite some convergence with public credit, private debt maintains a distinct profile. Public markets are highly liquid, while private debt funds often involve lock-up periods of eight to ten years. This illiquidity is compensated by an estimated 2% premium. Performance drivers also remain different: private debt is less exposed to equity market volatility, but more sensitive to the credit cycle and corporate activity.
“There is certainly some convergence in processes and risk perception,” explains Berthon. “But the behaviors remain fundamentally different. That makes private debt complementary, not a substitute.”
Retail investors entering the market
A notable shift is the growing role of retail investors. Once the domain of large institutions, private debt is opening up through new structures such as evergreen funds, secondary trading platforms, and lower minimum investment thresholds.
According to Vallière, this requires a cultural shift within the industry: “Retail investors expect greater transparency, regular reporting and user-friendly digital platforms. Those who want to succeed in this market will need to adapt quickly.”
Risks on the horizon
While prospects are strong, risks are rising. Heavy inflows could lead to overvaluation, while intense competition is driving looser lending standards. There are also concerns about defaults from previous vintages that weathered Covid and the inflation shock. The growing use of payment-in-kind (PIK) structures adds further long-term debt pressure.
Another systemic issue is the increasing interconnectedness between banks and non-bank financial institutions. This could amplify financial shocks if losses in private debt spill over to the banking sector.
A future of opportunities
Despite these challenges, the outlook remains promising. Growth areas include technology, AI, and ESG-driven financing. AI can enhance credit analysis and portfolio monitoring, while fintech platforms are expanding access and liquidity. Geographically, opportunities are emerging in less developed markets.
“Private debt is making the leap from niche to mainstream,” concludes Berthon. “If the industry can manage risks effectively, it will not only secure structural growth but also redefine the way companies finance themselves.”
