Outpacing Traditional Lending: Why Private Credit is the Ultimate PE Game-Changer

In the U.S., private equity (PE) firms are increasingly relying on private credit to fuel their deals and maintain momentum in an uncertain market. With traditional banks becoming more conservative in their lending due to economic volatility and regulatory pressures, private credit has emerged as a more agile and flexible solution. This shift represents a significant transformation in the financing strategies employed by PE firms, positioning private credit as a key driver of growth in the industry.

Banks Step Back, Private Credit Steps In

As market conditions tighten and banks impose stricter lending standards, PE firms are turning to private credit for the speed and flexibility they need. According to PitchBook, the seven largest U.S. public PE firms allocated a remarkable $121.1 billion to private credit strategies in Q2 2024, compared to just $11.3 billion for traditional private equity deals in the same period. This data illustrates the increasing reliance on private credit as traditional banks pull back from riskier loans.

As noted by PitchBook, “Sponsors can get deals done more efficiently when they don’t need to wait for bank financing.” The ability to move quickly is a major competitive advantage for PE firms, especially when compared to the longer approval processes associated with conventional bank loans.

The Flexibility Advantage

Private credit offers a level of flexibility that is hard to match with traditional loans. PE firms are increasingly drawn to private credit because it allows them to tailor financial structures to suit their specific needs, enabling greater operational control and agility in decision-making. The flexibility provided by private credit has made it a go-to option for financing acquisitions, growth capital, and buyouts.

According to a Forbes article, "Private credit gives businesses flexible and customized financing options, making it an easier way to finance acquisitions." This adaptability is a key reason why private equity firms are increasingly turning to private credit, as it allows them to align financing structures with their investment strategies without being constrained by the rigid terms imposed by traditional lenders.

The Expanding Private Credit Market

The growth of the private credit market has been staggering. With increasing demand for alternative financing solutions, private credit assets under management in the U.S. reached $1.5 trillion by the end of 2023, and the market shows no signs of slowing down. As banks pull back, the opportunities for private credit are expanding, providing PE firms with more options to fuel their growth.

Conclusion

Private credit is quickly outpacing traditional lending as the financing tool of choice for U.S. private equity firms. Offering speed, flexibility, and control, private credit allows PE firms to execute deals with greater efficiency, giving them a significant edge in an increasingly complex financial landscape. As private credit continues to expand, firms like Tzortzis Capital are at the forefront, providing innovative financial solutions that help businesses thrive.

Sources:

• PitchBook, "What’s Driving PE’s Asset Growth These Days? It’s Credit"

• Forbes, "Why Is Private Credit Gaining Popularity?"