Private credit, lending by institutions outside the traditional banking system, has transformed from a niche market in the 1980s into a $2 trillion industry by the end of 2023—a tenfold increase since 2009[1]. Its roots lie in the introduction of Business Development Companies (BDCs) through the Small Business Investment Incentive Act, but its rapid expansion came after the 2008 financial crisis. As regulations like the Dodd-Frank Act and increased Federal Reserve oversight forced banks to reduce high-risk lending, private equity firms and other non-bank institutions filled the gap with higher-yielding, tailored lending solutions. This growth was further fueled by the COVID-19 pandemic’s disruptions to supply chains, equity market volatility, and rising interest rates, cementing private credit as a thriving investment opportunity.
The latest episode of Tech It Up, SS&C Advent’s insightful podcast on fintech trends, deep dives into the surging popularity of private credit. Hosts Trent Berry and Jasmin Conner are joined by SS&C leaders Brant Snyder, Director of Product Management, and Matt Macomber, Senior Sales Engineer, as they discuss the drivers behind private credit’s meteoric growth, its evolving role in the global financial landscape, and the critical role of technology in this space. Here’s a recap of the episode’s highlights.
What’s Driving Demand?
The appeal of private credit lies in its potential for attractive returns. Between 2008 and 2023, average returns for private credit neared 11%[2]. This, coupled with its capacity to offer financing across diverse sectors—from real estate and infrastructure to consumer goods and machinery—has driven strong demand. Asset-based financing, jumbo residential mortgages, and high-risk commercial real estate have emerged as key growth areas.
Brant Snyder highlighted the increased need for advanced analytics and compliance tools as private credit continues to expand into new sectors. In the podcast, Snyder discusses how the bespoke nature of private credit demands robust tools to manage the mountains of data associated with diverse loan portfolios. This is particularly critical for lenders and investors navigating complex terms and risk profiles.
Global Expansion and the Role of Retail Investors
According to Matt Macomber, private credit’s growth isn’t confined to the U.S. The market has seen significant expansion in regions such as APAC and EMEA, driven by heightened regulation in traditional bank lending markets. Retail investors are also increasingly gaining exposure to private credit through offerings like short-term consumer debt funds, further diversifying the investor base and fueling growth through new avenues.
Technology: The Cornerstone of Scaling Private Credit
Technology has become indispensable as the private market grows in scale and complexity. SS&C Advent’s Geneva®, paired with SS&C Loan Data, plays a pivotal role by providing automated solutions for managing intricate workflows, such as delay draw term loans and multi-currency contracts. Geneva’s flexibility enables the seamless handling of restructuring events, multiple lender arrangements, and nuanced loan terms.
The integration of SS&C Loan Data with Geneva exemplifies how technology can streamline operations, enabling firms to:
- Manage large volumes of data efficiently
- Ensure accuracy in financial reporting and compliance
- Manage and process the global loan lifecycle
A cohesive technology stack in loan management is essential; Snyder emphasized the importance of having systems that integrate private credit alongside other strategies necessary for operational success.
Looking Ahead
Despite its many advantages, private credit faces challenges, particularly in data standardization. Unlike syndicated loans, private credit agreements often involve bespoke terms, making standardization elusive. However, tools like SS&C Loan Data help tackle these issues by automating data extraction and ensuring seamless integration into broader workflows.
The private credit market is projected to reach $3.5 trillion by 2028[3], fueled by a combination of institutional and retail investment. With robust technology and innovative solutions, SS&C Advent’s solutions are well-positioned to support the industry’s growth. For many different firm types, leveraging Geneva and SS&C Loan Data will be beneficial in meeting the complexities of this dynamic market.
Listen to the Full Episode
To delve deeper into Brant Snyder and Matt Macomber's insights, listen to the full episode of Tech It Up: Demystifying the Exponential Rise in Private Credit. Explore how cutting-edge technology can transform your approach to private credit investing and discover the opportunities that lie ahead in this rapidly expanding sector. To learn more about how SS&C Advent Geneva® or SS&C Loan Data can help, contact us or request a demo today.
[1]The next era of private credit. (2024, September 24). Retrieved from McKinsey & Company: https://www.mckinsey.com/industries/private-capital/our-insights/the-next-era-of-private-credit
[2]Understanding Private Credit. (2024, June 20). Retrieved from Morgan Stanley: https://www.morganstanley.com/ideas/private-credit-outlook-considerations.
[3]John Griffith III, M. P. (2024, April 9) Private credit: a main street opportunity. Retrieved from BlackRock Advisor Center: https://www.blackrock.com/us/financial-professionals/insights/private-credit-opportunity.
