Private credit has long been considered a niche asset class within the alternative investment universe, overshadowed by the dominance of private equity. However, as market dynamics evolve and investors search for yield above that of traditional fixed income, private credit is finally gaining prominence. Its rising profile has been particularly notable in emerging markets, where structural growth drivers, resilient risk-return characteristics, and the ability to deliver real-world impact make it a compelling addition to institutional portfolios.
An untapped growth engine
The growth of private credit globally is undeniable. According to Preqin, a leading provider of financial data and information, private credit now represents approximately 10% of the alternative investment market, making it the second largest segment after private equity, with growth expected to surpass US$2.6 trillion by 2029. While much of this momentum has been concentrated in developed markets, Africa and other emerging economies present compelling opportunities.
Demand is being fuelled by structural forces such as rapid urbanisation, rising infrastructure needs and the need to fund the global energy transition. Traditional lenders, constrained by regulatory requirements, are unable to meet these capital needs. This creates an opportunity for private credit providers to step in with flexible funding solutions for businesses and projects underserved by the banks. The result is an environment where institutional investors can capture attractive risk adjusted returns while directly funding long term development priorities, ideal for allocators seeking both performance and diversification.
Private credit as a portfolio building block
As a broad asset class, private credit encompasses diverse strategies and has matured into a strategic building block of diversified portfolios. Compared with private equity, characterised by higher risk reward dynamics and longer holding periods, private credit offers more predictable cash flows, lower volatility and shorter investment horizons. Direct lending strategies, such as senior secured loans, provide steady income and contractual protections, helping mitigate the illiquidity synonymous with private markets. Opportunistic and special situations credit strategies, by contrast, capture market dislocations and event driven opportunities, often delivering a yield premium. Together, these strategies balance stability with growth, positioning private credit as a compelling complement to private equity within institutional portfolios.
Importantly, private credit’s differentiated risk return profile enhances overall portfolio diversification. This diversification stems from its income generating nature and built in protections, which reduce reliance on public markets and counterbalance cyclical strategies. For institutions navigating the challenge of delivering steady returns in an uncertain macro environment, these qualities make private credit a particularly valuable allocation.
Navigating economic cycles
Economic cycles in emerging markets tend to be more volatile and rapid, rendering it difficult to time the market. One of private credit’s defining features is its adaptability across these cycles. Senior debt lending is typically an all weather strategy, while credit opportunities and distressed debt offer the most attractive entry points in contractionary or early expansionary phases. Infrastructure debt, by contrast, provides defensive non-cyclical exposure tied to long term capital projects. By blending defensive strategies, such as senior and infrastructure debt, with more dynamic credit opportunities, allocators can build a resilient portfolio capable of performing across varying market conditions.
From capital to impact
Beyond its financial attributes, private credit enables investors to achieve tangible impact with their capital, particularly in emerging markets. By mobilising private capital for infrastructure, promoting financial inclusion and supporting industries and consumers, investors can contribute to sustainable economic growth while earning attractive returns. We’re seeing excellent cases demonstrating how private credit can be mobilised to finance essential services and infrastructure, complementing traditional capital markets.
A structural shift in allocation thinking
Private credit is no longer a marginal player in institutional portfolios. Its expansion reflects not only the search for yield in a low rate environment but also a recognition of its unique attributes: a deep and growing opportunity set, resilience across cycles, complementarity with private equity and the potential for measurable impact in emerging markets. For professional investors, the question is no longer whether to allocate to private credit, but how to do so strategically. Those who embrace the asset class are well positioned to capture differentiated risk adjusted returns while creating lasting positive impact.
