Moody’s believes long-term growth remains intact as the asset class evolves into a broader financial ecosystem.
Private credit is facing its first meaningful test as an asset class, according to Moody’s Investors Service, as growing complexity, rising retail participation and increased interconnectedness bring new challenges to a market that has enjoyed years of rapid expansion.
Speaking at Private Markets Profile’s Private Credit Forum, Alexandra Aspioti, vice president and senior analyst at Moody’s Investors Service, said recent market developments had marked an important inflection point for the industry. “During the past few months, we’ve seen increased volatility and elevated redemption requests, especially in the US with semi-liquid funds,” she said.
Those pressures have been driven in part by concerns around asset quality in some areas of the market, particularly among US business development companies, leading to a shift in investor sentiment.
“Our view is that the long-term structural growth remains intact,” Aspioti said. “But in the near term, we do see an inflection point. And effectively, private credit is probably facing its first real test.”
Moody’s remains positive on the long-term outlook for the asset class. Aspioti argued that growth continues to be underpinned by structural rather than cyclical drivers, including tighter banking regulation, growing infrastructure requirements, energy transition projects and rising demand for technology and AI-related investment.
“What we’re really seeing is not a slowdown in growth – but a rebalancing within the market,” she said.
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Private credit’s attributes have become increasingly valuable during uncertainty and market volatility, she added. “Borrowers value the certainty of execution and the flexibility that private credit can offer.”
Europe is expected to play an increasingly important role in that growth story. Fundraising accelerated across the region during 2025, with Europe accounting for roughly half of global private credit fundraising in the first half of the year, according to Aspioti.
Moody’s expects European private credit AuM to reach between $800bn and $900bn by 2028, supported by regulatory reforms, growing financing needs and increasing institutional investor participation. “There is a lot of financing needs when we think about infrastructure, energy transition and defence,” she said.
She also highlighted how private credit has evolved beyond its origins in direct lending. Alongside traditional corporate lending, the market has expanded into asset-backed finance, fund finance, structured solutions and increasingly complex hybrid structures. The growth of these strategies has been accompanied by a wave of partnerships involving banks, insurers, alternative asset managers and specialist originators.
Aspioti pointed to growing collaboration between banks and alternative managers, as well as the increasing use of specialist partnerships to access new areas of lending such as consumer finance and hard assets.
As a result, private credit is becoming more deeply integrated into the wider financial system. “The rapid rise of large alternative managers” has created a situation where some firms now originate lending volumes comparable to major banks, she said.
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That evolution is bringing benefits, including greater flexibility and broader access to capital. However, Aspioti noted that this introduces new risks and highlighed reduced transparency, increasing leverage and growing concentration among large managers as areas requiring closer scrutiny.
She also pointed to rising interconnectedness across the market as a key trend. “Private credit is no longer a standalone segment,” she said. “It is becoming a tightly linked financial ecosystem.”
As banks, insurers and alternative managers become more interconnected, risk can move more quickly through the system, making exposures harder to track and increasing the importance of underwriting discipline.
That next stage of development is likely to be characterised by stronger underwriting discipline, greater disclosure expectations, increased regulatory engagement and a normalisation of credit losses from historically low levels. “We think that private credit is now entering a more mature phase,” Aspioti added.