Private Credit: Trends, Challenges and Opportunities

Private credit’s rise has become one of the most prominent themes in the world of private capital in recent years.

Even recent geopolitical tensions have done little to dent the sense that private credit is no longer a niche strategy but a structural component of modern financing.

The continuing expansion of the asset class is largely thanks to the significant reduction over the last decade in traditional lenders’ appetite and ability to lend. The post 2008 crisis reforms introduced by banking regulators including higher risk weighted capital requirements (for example Basel III), enhanced liquidity rules (Liquidity Coverage Ratio) and requirements to hold larger buffers of highly liquid assets have limited the bank’s capacity and appetite for lending to higher risk borrowers or more marginal lending propositions.

This was compounded by central bank policies of paying interest on reserves held by banks at the central bank encouraging banks to hold money in reserves which would otherwise have been used for lending to the private sector.

The resulting vacuum has been filled by private credit managers of all shapes and sizes. From venture lending specialists to global multi‑strategy houses, the universe now spans the full spectrum.

For jurisdictions like Jersey, Luxembourg and others within Mourant’s network, this helps explain the sustained increase in fund structuring and associated activity in the private credit space.

Growth and the importance of discipline

The picture is not one of unbridled enthusiasm. A recurring theme in recent industry discussions is the need for discipline. With capital continuing to flow into private credit, some fear that covenant protections could weaken and underwriting practices could soften.

A perceived bifurcation within the market highlights this concern. Smaller, more focused managers are often seen to be holding the line on covenants and underwriting requirements, while the largest global platforms — flush with capital and competing aggressively — may be more tempted to relax their standards.

For the asset class to avoid the pitfalls of previous credit cycles, discipline must continue to underpin each lending decision.

The growth of private credit is also reshaping adjacent asset classes. Liquidity needs have given rise to private credit secondaries vehicles, providing yet another tool for investors managing liquidity, hold duration or portfolio rotation.

The interplay between credit and secondaries will be an important development to watch.

What could slow the momentum?

Few expect the pace of growth to reverse quickly. Only three scenarios appear capable of materially slowing the market.

• The first is a major return of traditional banks to the space. Given the ongoing regulatory constraints, this seems unlikely in the near term.
• The second is a broader economic freeze that dampens borrowers’ appetite for capital. Businesses typically seek private credit either to expand or to stabilise in difficult conditions. If economic growth stalls and demand for capital contracts, origination activity may naturally slow. Recent geopolitical tensions may cause some businesses to put plans for borrowing on hold until volatility and geopolitical uncertainty reduce. However, other business may well accept that this level of volatility is the new normal.
• The third is regulatory intervention. Some policymakers continue to debate whether private credit falls within the bounds of shadow banking. The European Union, in particular, may seek to tighten oversight. Yet any intervention is likely to be calibrated; regulators recognise the importance of private capital in supporting economic growth, especially in markets where bank lending has become more constrained.

The rise of multi‑strategy platforms

Another driver of growth is the shift of large private equity houses into credit, adding capabilities alongside private equity, infrastructure and/or growth strategies. This does not mean private credit managers are pivoting towards private equity. Rather, multi‑strategy platforms are expanding into credit, creating a more competitive landscape.

Despite this, specialists continue to dominate, underscoring the importance of deep expertise in this more margin‑driven asset class.

AI: risk, opportunity and the future of underwriting

No discussion of modern finance is complete without referencing artificial intelligence. For private credit, AI is unsurprisingly both an opportunity and a risk.

On one hand, portfolio companies may face existential challenges if AI disrupts their business models. A company that appears stable today could see revenue lines eroded rapidly. Managers who fail to understand these risks may find themselves with underperforming loans and impaired portfolios.

On the other hand, AI offers private credit funds a powerful set of tools. Data‑driven underwriting can improve decision‑making, strengthen risk management and support more accurate pricing. Enhanced analytics can help funds maintain discipline — a critical factor given the asset class’s reliance on steady, margin‑based returns.

AI also has workforce implications. As data and technology become more central to underwriting and monitoring, funds will need fewer traditional analysts and more technologically capable teams.

Why offshore matters

The offshore dimension remains fundamental to private credit’s growth.

Luxembourg continues to dominate as the preferred jurisdiction for private credit funds in Europe, driven by its treaty network and structuring flexibility.

Jersey, however, plays a key role in supporting fund managers and advisers who operate globally.

Jersey’s appeal lies in its well‑regulated environment, experienced legal and regulatory community and growing ecosystem of investment managers. It is straightforward to establish management structures in the jurisdiction, with strong legal, regulatory and operational support. Jersey‑based managers can service funds domiciled elsewhere, providing global reach from a trusted and stable base.

Guernsey is also increasingly active in this space and is expected to compete vigorously. Other Mourant jurisdictions — including Cayman, Luxembourg, Hong Kong, Singapore, London and the BVI — offer complementary strengths.

Private credit’s evolution shows no sign of slowing. What matters now is how the industry navigates growth, maintains discipline and harnesses technology, while jurisdictions such as Jersey continue to provide the foundations on which global managers rely.