How is the private credit market evolving, and what are its growth prospects?
Robert Griffith: Private credit has evolved from a niche alternative into a mainstream source of capital, providing issuers with flexible financing solutions at a time when traditional funding channels are evolving.
"Private credit has evolved from a niche alternative into a mainstream source of capital."
Robert Griffith, Global Head of Senior Relationship Management
Eric Wise: The real growth in private credit started following the global financial crisis, as banks were required to hold more capital and subject to greater regulation and risk-weighted assets.
Middle market companies still need the provision of credit. And for banks, there are instances where it's just uncompetitive. And so we saw the private credit direct lender step in, and they were very successful.
Since then, they've been able to attract staggering amounts of capital from third party investors. The private credit market continues to have very strong tailwinds. I think this is a market that's going to continue to grow as a proportion of the overall capital markets.
Jason Goss: The actual growth rate has far exceeded what was already an aggressive estimate two years ago. There’s a lot of talk about whether or not it's a bubble. Most people would say it’s not; some say it's actually just the beginning.
"There’s a lot of talk about whether or not it's a bubble. Most people would say it’s not; some say it's actually just the beginning"
Jason Goss, Head of European Solutions and Structured Products
How are private credit deals changing?
Wise: The definition of private credit has expanded beyond traditional corporate credit to things that would be more associated with securitization. It could be loans to asset classes like digital infrastructure or real estate.
"The definition of private credit has expanded beyond traditional corporate debt to include loans tied to securitized asset classes like digital infrastructure and real estate."
Eric Wise, Head of Alternative Finance
Goss: Firms are partnering with banks, mainly trying to originate and source raw cash flows. Those cash flows can be associated with a whole host of different asset classes, from equipment finance to consumer finance to mortgages to high yield credit loans. This is also why we see private capital firms acquiring origination platforms. They’re going direct to source.
Wise: I expect the financing of the alternative asset ecosystem will continue to grow. That’s associated with what we think of today as fund finance: pooling NAV loans, pooling LP or GP interest – all that makes the private capital ecosystem flow will continue to move into the private credit market.
"We see private capital firms acquiring origination platforms. They’re going direct to source."
Jason Goss, Head of European Solutions and Structured Products
Private credit has been U.S.-centered to date – what is the strength of the global market?
Wise: I think the opportunity for investors globally to participate in the private credit market is probably greater than the opportunities for originators to grow at the same pace and scale as the U.S. But I do believe that over the next five to seven years, there's going to be a significant uptake in the creation of private credit in regions outside the U.S.
How is RBC positioned in this market?
Wise: We're fundamentally a full service provider of capabilities when it comes to the private capital ecosystem. The loan product is really a cornerstone of what we do in capital markets.
Goss: In terms of what clients are looking for, there's the advisory side; there's the financing, how we are going to structure things that are optimal for our clients’ objectives; then there’s risk management. That’s where the power of our balance sheet comes into play.
There are also consistent questions around asset sourcing. These are very asset-hungry clients that we're speaking to, very acquisitive, looking for differentiated investment opportunities. It brings into play all of our business lines across the market space.
What innovations will be driving the market over the next few years?
Wise: I think about information as being the most valuable commodity in the private capital ecosystem. As a firm, probably the most valuable asset that we provide is harnessing the information that comes in and out of RBC on a daily basis.
The opportunity for innovation is our ability to leverage all of the work that's being done today in the AI space with what is a stunning amount of private information.
Goss: In terms of innovation, we're focusing a lot of our efforts around risk transfer. There are a whole host of different risk transfer techniques.
That could be issuing SRTs, or a sub-participation agreement under an LMA construct. It could mean we buy an asset, put it on balance sheet and do a funded TRS into a client. But it all comes down to how we optimize the structure for our clients’ investment needs and objectives. We focus heavily on innovating across product delivery, risk transfer, and asset sourcing — to stay at the forefront of each area.
"The opportunity for innovation is our ability to leverage all of the work that's being done today in the AI space with what is a stunning amount of private information."
Eric Wise, Head of Alternate Finance
