Private Credit Insights 4Q24: The Year Ahead

• Deal flow: With banks coming back to the table, lower government regulation, and nearly $1 trillion in private equity dry powder, next year is likely to see much stronger deal flow than 2024. 
• Spreads: Razor-thin spreads in the public market continue to drive allocations into private markets, but there are also likely to be client shifts among asset managers as the big private credit consolidation begins. 
• Policy: The incoming Trump administration could offer strong potential catalysts for some alts verticals, especially energy and infrastructure, and it’s at worst benign for the rest. 
• Risks: Some of Trump’s policy proposals (deportation, tariffs) could have inflationary consequences if implemented in their current form—which may then have a knock-on effect on Fed rate policy.

• IG private credit: Continued strong investor inflows and new non-bank originators will likely spur more (and larger) deal flow volume in 2025…but consolidation pressure may hit weaker asset managers. We’re bullish on ABF, energy infrastructure, and floating-rate deals. 
• Middle market credit: Private equity’s dry powder mountain will drive M&A—but seek out collateral and covenants, as balance sheets remain strained. We’re bullish on power, data centers, U.S. manufacturing and structured future flows. 
• Renewable energy infrastructure debt: With election rhetoric over, Trump and his new energy czar are quietly making room at the table for renewables—and deal flow remains vibrant. We remain bullish on solar and combined solar+storage. 
• Mortgage derivatives: Returning demand for agency MBS in 2025 will potentially drive higher valuations and mortgage derivative issuance, but high-coupon new issues are likely to be volatile; we see better value and less risk in more seasoned securities. 
• Commercial mortgage lending: Volumes are rising as lenders move to lock in high rates before we’re too deep into the cutting cycle. We’re big fans of industrial and retail in high-growth secondary markets, as well as selected distressed sectors—but not office

Tis the season when everything is supposed to slow down as the old year draws to a close…and yet these last few weeks have been some of our busiest all year. I’m not complaining! Too busy is a good problem to have. But with the election behind us, we’ve already seen a fund first close and some big allocation moves, and surprisingly little “let’s pick this up again after the holidays.” 

This bodes well for 2025, which we’re entering with strong macro fundamentals: lower rates, a solid economy, good corporate earnings, and a staunchly pro-business incoming administration. As long as the president-elect’s tariff policies are implemented in a way that mitigates their inflationary potential, macro momentum should remain positive. 

Beyond the macro atmosphere, market-specific factors are also likely to make 2025 a great one for our investment teams: near-record private equity dry powder and several new non-bank originators promoting deal flow and M&A, plenty of buyers as thin public corporate bond spreads push yield-seeking investors into the private markets, and banks returning as both lenders and buyers. 

And that’s just the big stuff. I’ve rounded up our teams for an in-depth look at how the new year and new administration are likely to treat each of our focus areas— and what sectors and investments they’re most excited about. Let’s lead off with our investment grade private credit team, fresh from their win as Insurance Investor’s private markets manager of the year.¹

A note about risk 

All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. All security transactions involve substantial risk of loss. 

Private credit: Foreign investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic. As interest rates rise, bond prices may fall, reducing the value of the share price. Debt securities with longer durations tend to be more sensitive to interest rate changes. High yield securities, or “junk bonds”, are rated lower than investment-grade bonds because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. Other risks of private credit include but are not limited to: credit risks; other investment companies’ risks; price volatility risks; inability to sell securities risks; and securities lending risks. 

Mortgage derivatives: Mortgage derivative strategies often involve investment in derivatives and/or illiquid securities, and may employ a variety of investment techniques such as leverage, and will concentrate primarily in mortgage sectors, each of which involves special investment and risk considerations. 

Commercial mortgage lending: Investments in commercial mortgages involve significant risks, which include certain consequences as a result of, among other factors, borrower defaults, fluctuations in interest rates, declines in real estate values, declines in local rental or occupancy rates, changing conditions in the mortgage market and other exogenous economic variables. All security transactions involve substantial risk of loss. The strategy will invest in illiquid securities and derivatives and may employ a variety of investment techniques such as using leverage, and will concentrate primarily in commercial mortgage sectors, each of which involves special investment and risk considerations.