Private credit in the new cycle: allocating for yield, complexity, and control

In an era where macro narratives shift faster than central bank press conferences, one asset class has managed to hold allocator attention with near-religious intensity: private credit.

Once the domain of distressed debt boutiques and mezzanine specialists, private credit has now morphed into a US$1.7 trillion behemoth. By 2028, Preqin forecasts the market will swell beyond US$2.8 trillion. And while it was born in the shadow of the global financial crisis, it is now thriving in the post zero interest rate world, precisely because it offers what allocators crave most: yield, complexity, and control. But we are not in 2021 anymore. This is not a rising tide. This is a cycle and only those allocators who recalibrate their approach will surf it successfully.

Why private credit still has momentum

Let us start with the obvious: returns. In a world where investment grade bonds flirt with 4 to 5%, and equities face valuation headwinds, private credit strategies continue to deliver net internal rates of return of 9 to 12% for core direct lending, and 12 to 18%+ for opportunistic, special situations, and asset-backed credit.

According to Cliffwater’s Q2 2025 analysis of US middle market private credit funds:

• Average yield to maturity (unlevered): 11.2% 
• Default rate (12-month trailing): 1.3% 
• Recovery rate: 61.5%

Contrast this with syndicated loan markets, where volatility, mark-to-market swings, and spread compression have become the norm. For allocators with a long-term horizon and low liquidity needs, private credit offers something rare: non-bank credit with equity-like returns and bond-like downside protection.

The new allocator mandate: control over access

Allocators are no longer happy with “access to private credit”. They want architecture and control over risk, duration, geography, sector exposure, and structure. 

We are now seeing:

• A 47% rise (year-on-year) in demand for SMAs and co-investment rights from institutional LPs 
• Family offices demanding direct allocation pathways or club-style deals 
• Growth in short-duration private credit, often yielding 8 to 10% net with 12 to 18 month exposure windows

In 2022, you might have bought into a blind pool for access. In 2025, you want to know the actual loan book, borrower quality, and exit mechanisms. This is the new allocator mindset.

Geographies: the shift from the West to the rest

While the US still dominates (~60% of AUM), allocators are rapidly diversifying:

• Asia Pacific: growing 16.4% year-on-year in private credit AUM 
• Middle East and India: small base, but 30%+ year-on-year growth, driven by family offices and local banks 
• Europe: plateauing, with regulatory tightening and economic stagnation compressing spreads

There is now a genuine appetite for geographic barbell strategies: combining US middle market stability with Asian growth and MENA complexity premium.

What are smart allocators doing differently?

We see five patterns across allocators who are outperforming in this space:

1. Vertical expertise: Allocators are backing managers with sectoral domain depth, especially in healthcare, infrastructure, logistics, and renewable energy 
2. Collateral sensitivity: From asset-backed lending to revenue-based financing, smart LPs are focusing on real downside protection 
3. Local insight: Deploying through regionally anchored managers (rather than global GPs with fly-in teams) is driving better underwriting 
4. Duration discipline: Avoiding overreach in long-dated loans without tested exit routes 
5. Liquidity layering: Blending long-hold funds with short-duration, semi-liquid sleeves to balance cashflow needs

The structures are evolving

The rise of private credit has been matched by a quiet revolution in fund architecture. GPs and LPs alike are experimenting with:

• Evergreen funds with periodic redemption windows 
• NAV-based lending facilities for portfolio leverage 
• Tokenised feeder funds, improving LP liquidity and expanding retail access (notably in DIFC and ADGM) 
• Sharia-compliant private credit funds, especially out of Riyadh, Manama, and Kuala Lumpur

We are seeing strong interest in hybrid structures that combine real-asset-backed lending with income distribution and FX-hedged layers for international LPs.

Risks: what keeps allocators up at night

It is not all smooth sailing. The risks in private credit are becoming more nuanced:  

• Covenant lite creep is now re-emerging, particularly in the upper mid-market 
• Private equity sponsor behaviour is under the microscope, especially with rising refinancing risk 
• Valuation opacity despite monthly reporting, true NAV in times of stress is still unclear 
• Regulatory divergence, as in what is fine in Luxembourg may not fly in Singapore or the UAE

The biggest risk, however, is complacency. Many allocators assume past performance will hold through the rate cut cycle. That’s a dangerous assumption when pricing, leverage, and exit timelines are shifting fast. 

The next decade: localisation and tokenisation 

Looking ahead, we expect two major themes to shape private credit globally:

1. Localisation: Capital will increasingly seek local origination, not just for yield, but for geopolitical resilience and thematic exposure (for example, China supply chain shifts, India infrastructure debt, GCC SME funding gaps) 
2. Tokenisation: The demand for 24/7 fractionalised access, improved secondary liquidity, and multi-jurisdiction compliance is pushing funds toward tokenised share classes and smart contract-based waterfalls

Private credit will become the proving ground for the next generation of fund infrastructure. GPs that ignore this will lose capital. Allocators that embrace it may find alpha beyond yield.

Final thought: from access to intelligence

In the early stages of private credit, allocators were happy just to “get in”. Now, the most sophisticated LPs are demanding intelligence:

• Intelligence in underwriting 
• Intelligence in structuring 
• Intelligence in aligning returns with risk and liquidity

As we prepare to host a series of private credit roundtables with Seviora across Abu Dhabi, Riyadh, and Dubai, I hope we will move the conversation from hype to substance. Not just where the capital is flowing, but how it is being put to work, who is really winning, and what the next evolution will look like.

If you are an allocator, it is time to rethink how you approach private credit.

If you are a manager, it is time to prove you can deliver not just yield but insight, alignment, and resilience.