Finance does sometimes offer a free lunch. Trouble is, it tends not to be available for very long. That is the situation in which the private credit industry finds itself. The outsize returns direct lenders made when banks were sitting on the sidelines are no longer on offer. With credit waters becoming choppier, making money will now require skill — and scale. 

The problem, for direct lenders, is that they are coming under increased competitive pressure, especially when it comes to providing larger, higher-quality loans. The syndicated loan market is open for business, and banks are regaining share.

Indeed, in the first four months of 2024, US companies refinanced $13.2bn of private debt on the syndicated market, according to PitchBook data. In order to compete in this segment, private credit is having to tighten pricing and water down covenants.