2025 Private Credit Year in Review: A $2 Trillion Asset Class Faces Its First Real Test

The Big Picture

Private credit crossed $2 trillion in AUM in 2025, cementing its status as the dominant force in alternative investments. But the year also brought the asset class's first real stress test since the 2008 financial crisis—exposing cracks that had been papered over during 16 years of benign conditions.

Why It Matters

The year revealed a fundamental tension: record capital inflows collided with deteriorating credit quality, forcing the industry to confront whether its explosive growth came at the cost of underwriting discipline.

By The Numbers

• $2.1 trillion: Global private credit AUM, up from $1.7T in 2024

• $160+ billion: Dry powder ready to deploy

• $48 billion: Retail inflows in H1 alone—already exceeding full-year 2023

• $344 billion: Semiliquid fund assets, up 60% from 2024

• $36 billion: Secondaries volume, representing 6x growth in 5 years

• ~2-3%: Default rate—rising but still manageable

The Year's Defining Themes

1. The Retail Revolution Accelerated

What happened: Wealthy individual investors poured record sums into private credit, offsetting institutional slowdowns.

• $48B in H1 2025 alone—already surpassing all of 2023

• Trump's August executive order opened 401(k) plans to private credit

• Semiliquid and evergreen funds crossed $500 billion in AUM

• BlackRock, State Street, and Apollo racing to build retail-accessible products

The catch: Moody's warned that retail investors' liquidity expectations clash fundamentally with private credit's illiquid nature—creating potential systemic vulnerabilities during market stress.

2. Howard Marks Sounded the Alarm

The quote that defined the year:

What he saw:

• Six suspected fraud cases emerged in recent months (First Brands, Tricolor)

• $5.7 billion discrepancy in First Brands' disclosed vs. actual obligations

• 16 years of bull market conditions bred complacency in due diligence

The warning: After operating in "largely benign conditions since 2011," the $2 trillion sector now faces its first real stress test.

3. AI Infrastructure Became the New Goldmine

The opportunity: Apollo's Jim Zelter projected the private credit universe at $40 trillion—not the commonly cited $1.5-2T—driven by:

• Data center CapEx reaching $7 trillion by 2030

• Energy transition financing needs in the hundreds of billions

• Investment-grade borrowers dominating deal flow (unlike prior cycles)

The Blue Owl thesis: Own the "airports of information" (data centers) rather than pick AI software winners—letting every competitor pay rent.

4. Software Lending Hit a Wall

The contrarian call: Marathon Asset Management's Bruce Richards halted all software lending entirely.

His prediction: Software sector defaults will triple over the next 5-7 years as AI creates a "Blockbuster Video moment" for companies that can't adapt.

The exposure: 20-30% of private credit books are in software—representing the sector's single largest concentration risk.

5. Bank Partnerships Deepened

The shift: Traditional banks stopped fighting private credit and started partnering instead.

• $96 billion in bank loan commitments to private credit vehicles

• JPMorgan committed $50 billion despite Jamie Dimon's public skepticism

• Joint ventures proliferated (Wells Fargo, Citi, Fifth Third)

• Regulatory arbitrage: Risk weighting for NDFI loans can be 50% lower than direct CRE loans

The irony: Banks find it more profitable to lend to private credit intermediaries than to directly serve middle-market borrowers.

6. The Geographic Expansion Continued

Asia surged:

• Asia-Pacific private credit forecast to grow 56% to $92B by 2027 (16% CAGR)

• Japan's M&A activity doubled to $300B—busiest in three decades

• Blackstone, Apollo aggressively expanding APAC credit platforms

Europe repositioned:

• Defense spending and industrial policy creating new financing needs

• UK Mansion House Accord targeting £740 billion in pension allocations

• Geographic diversification to hedge U.S. tariff exposure

7. The Secondaries Market Exploded

The catalyst: DPI (distributions to paid-in capital) crisis in private equity spilled into credit.

• 2019: $5-7 billion in volume

• 2024: $36 billion in volume

• 2025: On pace for $50B+

What it signals: LPs desperately need liquidity, and GPs are using continuation vehicles to extend high-quality assets—but skepticism about valuations is mounting.

The Warning Signs

Credit Quality Concerns

• Payment deferrals hit 11.4% in some portfolios

• PIK (payment-in-kind) usage rising as borrowers struggle with interest burdens

• Interest coverage ratios falling, with increasing share below 2x threshold

• "Liability management exercises" becoming more common

Spread Compression

• Competition driving returns from 14.9% to 5.2% in some segments

• Upper middle-market deals ($100M+ EBITDA) seeing public-market pricing

• Only true middle-market lending maintains wider spreads and covenant protection

Systemic Risk Questions

• Federal Reserve study: Private credit surged to $1T, largely bank-funded

• Bank exposure concentrated in revolving credit lines with 59% utilization

• Open-ended retail structures could introduce forced-selling dynamics

What the Giants Said

• Jim Zelter, Apollo: "The private credit universe is $40 trillion, not $1.5 trillion"

• Bruce Richards, Marathon: "Private credit all day long" (vs. PE on risk-adjusted basis)

• Marc Nachmann, Goldman Sachs: Coming credit cycle will create "clear winners and losers"

• Jon Gray, Blackstone: AI represents "the main thing" driving the next industrial revolution

• Jamie Dimon, JPMorgan: Compared private credit to pre-2008 CDO mania (while investing $50B)

The Consolidation Thesis

Apollo's Zelter dropped the bomb:

Why it matters: Scale now determines survival. Only firms with broad distribution, low operating costs, high credit ratings, and massive origination capability can sustain mid-teens ROEs long-term.

Looking Ahead to 2026

Bulls Say:

• $2T funding gap through 2028 supports sustained higher yields

• Infrastructure CapEx creates investment-grade opportunities for decades

• Retail democratization is just beginning (<5% advisor allocation vs. 20-50% institutional)

• Banks continuing to retreat from middle-market lending

Bears Say:

• 16 years of benign conditions masked underwriting deterioration

• Retail liquidity expectations will clash with private credit reality in a downturn

• AI disruption could trigger unprecedented software sector defaults

• "Everything's priced for perfection and there's a lot of risk on"

The Bottom Line

2025 was the year private credit graduated from alternative to essential—but also the year the industry's first real cracks appeared.

The winners going forward will be those with:

• Scale to justify rigorous credit analysis

• Discipline to walk away from overpriced deals

• Diversification beyond software and sponsor-backed lending

• Infrastructure to serve both institutional and retail capital

As Pantheon's Rick Jain put it: "The hounds are out. I don't see them coming back."

The shift from public to private markets appears irreversible. The question for 2026 is whether the industry can maintain its discipline as capital continues to flood in.