The Forces Propelling Direct Lending: As It Scales, Complexity Follows

The rise of private direct lending

Brad Foster

We are seeing a structural shift whereby the lines between public and private markets have become increasingly blurred, with allocations to alternative investments on the rise and a wider pool of investors participating. Within this shift, private direct lending has emerged as one of the fastest-growing segments in private markets. The borrower base has shifted and broadened to include everything from public investment grade to unrated private borrowers, and it has now become a nearly $2 trillion market, projected to double over the next four to five years, according to Bloomberg Intelligence data.

At the same time, companies are increasingly drawn to direct lending as an alternative to self-funding through bonds and broadly syndicated loans, valuing the speed, flexibility, funding diversification benefits and greater certainty of execution in the private market. The multi-year retreat of banks from lending, driven largely by regulatory capital and balance sheet constraints, has also opened the door for private lenders to step in and capture an increased share of the corporate lending market. Finally, investor demand has surged: Institutional allocators continue to seek yield, diversification and low correlation to public markets, while retail and high-net-worth investors are beginning to access the market through more flexible fund structures.

Taken together, these forces are propelling private direct lending into the mainstream of corporate financing and institutional portfolios alike.

Keeping Pace With Private Credit’s Growth

As direct lending scales, complexity follows. From conversations with clients, I am increasingly hearing how investors and managers are seeking better visibility into lending activity; increased transparency of valuations; more seamless workflows; and the data, tools and technology that can support increasingly sophisticated risk and portfolio analysis across public and private credit strategies. These specific areas are seeing growth:

Details in the Data: Unstructured, outdated, inconsistent and non-standardized data that lack interoperability with public market data make navigating today’s private credit markets increasingly difficult for investors. Timely visibility into deal activity and valuations is essential, not just at the point of underwriting, but throughout the life of a loan. Equally important is the ability to integrate this data with analytics and tooling to build a fully integrated investment process. Without this, decisionmaking can become less effective—particularly during origination, pre-deal screening and due diligence, when speed and precision are essential to identifying risks and new lending opportunities.

Workflow Modernization: Many firms still utilize fragmented workflows, including manual spreadsheets, analytics, PDFs and ad hoc communication across teams. While these approaches may have sufficed when deal volumes were smaller, today’s pace and investor demands for transparency are pushing many firms to adopt more scalable and efficient workflows.

Preparing for Regulation and Constituent Pressure: Private credit managers are increasingly tapping into retail investors and pension funds, and recent moves to expand 401(k) access to private-market strategies could accelerate that trend. As retail participation grows, regulatory and constituent pressure for transparent, timely valuation data and risk analytics related to private credit will likely increase, requiring more sophisticated models and reporting frameworks founded on high-quality data.

Tracking Direct Lending at Scale

Historically, tracking direct lending activity at scale has been difficult. One area where some transparency is available and continues to improve is through business development companies. In the U.S., BDCs have, for many years, raised and deployed capital into companies, thereby broadening participation in driving growth across private credit. Their public reporting requirements provide investors with a valuable window into deal activity and portfolio performance. Notably, BDCs have continued to see rapid expansion, with the 10 largest ones growing their investment holdings 40% to $246 billion in the last four quarters, according to Bloomberg Intelligence. Privately traded BDCs have fueled much of this growth, driven primarily by large private wealth capital inflows.

Building off this, newer tools such as Bloomberg’s direct lending function DLEN have started aggregating BDC holdings data alongside M&A disclosures, news and submissions from direct lenders. The result is an aggregated view into private credit deal flow. By maintaining both historical and recent transaction data, solutions such as these enable investors to assess and monitor market size; spreads by sector and region; and evolving pricing dynamics.

High-quality, reliable data that consistently and accurately track private deal flow, funds and companies and are interoperable with other private markets data, as well as public markets data, have the potential to reshape the industry—driving greater transparency, increased efficiency, scale, more precise valuations and stronger investor confidence.

Looking Ahead: Public Market Thinking for Private Markets Insights

As private credit continues its rapid ascent, CIOs face the challenge of balancing opportunity with oversight. Greater participation from pensions, including 401 (k) plans, and insurers will only amplify the demand for transparency, scalability, interoperability and standardized workflows. The firms best positioned to navigate this landscape will be those that can integrate high-quality private market data into the same infrastructure they rely on for public credit, supporting origination, due diligence, valuation and risk monitoring at scale.

Brad Foster is the head of fixed income and private markets at Bloomberg LP

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of CIO, ISS Stoxx or its affiliates.

Tags: Private Credit, private direct lending, Private Markets