The world's private credit market, which focuses on providing debt to businesses, is set to hit $1 trillion (£754bn) by 2020, according to research from trade body the Alternative Credit Council (ACC).
The industry currently manages around $600bn in assets, and has grown 14-fold since the turn of the millennium. Based on this growth rate, it will hit $1 trillion in just three years.
Private credit has seen a boom since the financial crisis, as banks became more reluctant to lend and investors were keen to find an asset class that could generate strong returns.
“Private credit has become a permanent feature of the lending landscape,” said Jack Inglis, chief executive of the ACC's parent organisation the Alternative Investment Management Association.
“Performance across the industry continues to be strong relative to many other asset classes. This has attracted fundraising, as investors hope to capture continued outperformance in the future.”
The ACC's report, created in collaboration with law firm Dechert, highlights that small to medium-sized businesses are a dominant feature of the lending market, raking in 34 per cent of total capital combined with the mid-market. Large businesses receive 22 per cent of all lending.
Private credit managers are adapting to become more flexible, the report indicates, as nearly half of managers say that covenants – or the promises which the borrower must keep – are becoming less demanding.
But the managers' preference for senior secure positions within a company's capital structure, where they have priority for money being repaid, means they are well placed to protect their investors' interests, the report adds.
A large chunk of private credit players (38 per cent) were unsure whether the UK would be more or less attractive post-Brexit. The UK is currently the second most active private credit market globally, after the US.