(Bloomberg) — Private credit, already one of the fastest-growing markets, has room to grow from $1.7 trillion now to $15 trillion over the next decade as more types of loans become available and expand, said Bruce Richards of Marathon Asset Management, which invests in many credit markets.
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“Over the next eight to 10 years, that market will be $15 trillion, which is a really big number,” Richards said Thursday at an event at New York University’s Stern School of Business.
Private lending has surged in recent years, filling a gap as tighter regulation has forced banks to pull back on riskier loans. Strong demand from pension funds, endowments, insurance companies and other investors has fueled growth in the industry.
Mr. Richards, CEO of Marathon, which manages about $23 billion in assets, estimates that the actual size of the market today may be closer to $3 trillion, taking into account leverage.
Meanwhile, if asset-backed lending becomes a bigger part of private credit, the subsector could grow 40% annually to become a $6 trillion market, Richards said. “It could be as big as direct lending in a few years,” he said. The market opportunity is even bigger when you factor in so-called LME transactions, or debt management techniques in which distressed companies seek creative ways to raise capital to eliminate existing debt, he said.
Richards is not the only one to suggest that the private credit market may be much larger than currently assumed: Mark Rowan, chief executive officer of Apollo Global Management, says the addressable market is about $40 trillion, most of which is not leveraged loans.
“Non-traded, or ‘private’, corporate and consumer credit resides on the balance sheets of not only banks but also insurance companies, asset managers, pension funds and many other investor markets,” Apollo explained in a presentation. The firm noted opportunities across a range of loan types, including mortgages, auto loans and equipment financing.
Richards said new banking regulations coming into force under the Basel III endgame regime will be a “driving force” for asset-backed lending as traditional lenders may further pull back from certain types of loans. He cited opportunities in a “wide variety of assets” such as aircraft leasing, shipping finance and music royalties.
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