While private debt continues to draw strong interest from institutional investors, the market is surrounded by conflicting narratives — some believe it’s a great opportunity and others warn of overheating.
Speaking at the Canadian Investment Review’s 2025 Global Investment Conference, Tarik Serri, senior director of hedge funds and alternative investments at Trans-Canada Capital Inc., shared insights on the true dynamics of the asset class.
Over the past decade, private debt assets under management have more than tripled, now exceeding $1.6 trillion, he said, noting this growth trajectory has closely mirrored that of the public leveraged loan and high yield markets.
As it matures, private debt is also becoming more diverse, added Serri, with strategies ranging from corporate direct lending, asset-backed lending, special situations and specialty finance, each offering distinct risk-return profiles and investment characteristics.
Despite the breadth of the market, a growing share of capital is being allocated to a small group of large asset managers, particularly those managing vehicles over $5 billion, he said. Regionally, he noted, the U.S. remains dominant in both deal activity and fundraising volume, driven by the size and sophistication of its private credit market.
According to Serri, the expansion of private debt is being fueled by two structural trends: the long-term pullback of banks from lending following the 2008/09 financial crisis and the continued growth of private equity. As regulatory capital requirements have constrained traditional lenders, private credit funds have increasingly stepped in to meet borrower demand, he added.
Since 2010, the asset class has consistently outperformed high-yield bonds and leveraged loans, delivering strong returns with lower volatility and no calendar-year drawdowns, said Serri, noting private debt is also distinguished by its structural resilience. Closed-end funds typically operate with low leverage and are backed by long-term institutional capital, he added, primarily from pension funds, endowments and foundations.
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“Showing the stability and the focus on institutional investors and lower leverage enhances the market stability in the private debt world.”
Nonetheless, he advised investors to be mindful of emerging risks. Although headline default rates remain low, the incidence of distressed exchanges (out-of-court restructurings) has increased significantly, he said. “Distressed exchanges as a share of leveraged loans were at really high levels [in 2024] and were matching 2020 COVID levels as well.”
Amid this shifting landscape, performance dispersion among managers has widened significantly, noted Serri, which demonstrates that manager selection is more consequential than ever.
Ultimately, he said the outlook for private debt remains positive, with the asset class continuing to benefit from robust demand and structural tailwinds, while offering evolving opportunities across a spectrum of strategies. “Default rates are still below their long-term average, but distressed exchanges are growing since 2020, so investors need to be cautious.”
At the same time, active management remains incredibly important, said Serri. “A manager that has the ability to restructure debt and to manage business stress becomes a key differentiator in this environment when you hire a private debt manager. Expertise does matter in this environment.”
Read more coverage of the 2025 Global Investment Conference.