At the UK Private Capital Summit in September, we hosted a fireside chat with Peter Lockhead, Managing Director and Portfolio Manager of ICG's Senior Debt Partners Strategy, exploring where private credit stands today and what the next stage of its development might look like. The discussion pointed to a market that continues to have room to expand, but where growth is bringing greater scrutiny of underwriting discipline, competition, portfolio risk and fund structures.
Private Credit Still Has Significant Room to Grow
Despite the rapid expansion of recent years, private credit accounts for only around 10% of global corporate lending exposure. That headroom matters, because one of the persistent questions about the asset class is whether its best growth is already behind it. The opportunity for further growth remains, but the character of that growth may look different from what drove the market to this point.
The current health of the market is broadly positive. Credit discipline has generally held up, and portfolio performance has remained resilient even as competition has intensified. The more important caveat is that the market has not yet been meaningfully tested by a significant economic downturn. A market that looks healthy in benign conditions is not the same as one that has demonstrated resilience under stress, and that distinction should inform how managers and investors assess where things stand.
Competition Is Pressuring Terms, Not Just Pricing
Increased competition in private credit is having a predictable effect on pricing, but the more consequential development may be what is happening to documentation. Borrower-friendly terms have become more common, and for LPs evaluating managers, covenant structures and document quality deserve as much scrutiny as headline yield.
Beneath the surface, PIK (payment-in-kind) usage is worth watching as a potential early indicator of borrower stress. Headline default rates can present a lagged or incomplete picture of underlying portfolio health. An increase in PIK arrangements, where borrowers defer cash interest payments rather than pay them currently, may signal building pressure in a portfolio before it shows up in traditional credit metrics. Experienced managers will be monitoring this closely, and LPs should consider how managers are incorporating these signals into their portfolio monitoring and risk assessment.
AI Introduces a New Dimension to Credit Analysis
The longer-term credit implications of AI remain uncertain, particularly for lenders with significant exposure to software businesses. AI is reshaping how software companies compete for, price and retain customers. Whether a specific portfolio company emerges as a winner or loser in that process is not always clear at the point of underwriting, but the question needs to be part of the analysis.
For portfolios with material software exposure, understanding the AI resilience of individual borrowers is becoming a component of credible credit underwriting rather than a speculative overlay. While the eventual shape of disruption is uncertain, the need to account for it is not.
Fund Structure Needs to Match Asset Reality
New capital sources are driving structural evolution in private credit. Evergreen structures and vehicles designed for insurance and institutional investors are growing, broadening access to the asset class and allowing capital to remain deployed for longer. This is better understood as evolution than reinvention. The underlying characteristics of private credit loans have not changed.
The important discipline in this context is ensuring that fund terms and investor expectations remain aligned with the fundamentally illiquid nature of the underlying assets. Promising liquidity that the assets cannot support creates risk for investors and for the credibility of the broader market. As structures become more varied and the investor base widens, the match between fund mechanics and actual asset liquidity should remain a firm constraint rather than a variable.
Quality businesses, sensible leverage, experienced management and disciplined underwriting remain fundamental to private credit. They are likely to matter more, not less, as competition increases and the market enters a more mature phase. Growth and discipline are not in conflict, but they require active management rather than assumption.
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