Top ten Private Credit Trends

Date: 21 May 2025

Karen Jones

by Mario Lisanti , Partner, and Davide Cipolletta , Senior Associate, LMS Studio Legale, Milan office

How would you describe the current macro and political environment’s influence on private credit deployment and investor appetite?

The key word to describe the current macro and political environment is: uncertainty. It is uncertain if inflation will rebound and if interest rates will continue to fall, and it is unclear how the on-going conflicts in Ukraine and in the Middle East will develop. These factors do affect global trade and investments, as well as global M&A volumes. As far as Italy is concerned, M&A is one of the key drivers of private debt deployment, hence a significant slowdown in M&A is expected to affect private debt volumes. In terms of investor appetite, according to certain sources, fund raising is getting a little more challenging in the lower mid-market segment, but generally we are not seeing a significant change: private debt is still regarded as a solid asset class providing higher returns and diversification benefits, despite the associated risks.

What are the most significant global regulatory or monetary policy shifts impacting private credit today — and how should private clients respond?

The recent decisions by many central banks in the Western world to cut interest rates, may lead certain long-term investors (e.g. pension funds) to reconsider their asset allocation to seek higher yields. Private credit may benefit from this potential reshuffle, especially in countries like Italy where the product is still relatively new. In terms of forthcoming regulatory changes, the key development is the implementation of the AIFMD II, the EU Directive that covers, inter alia, loan origination funds. Italy and the other EU Member States are working on the drafting of the implementing rules at domestic level (deadline is April 2026).

Where are you seeing the greatest demand for private credit strategies among high-net-worth and ultra-high-net-worth investors?

In Italy, corporate credit is the main strategy selected by high-net-worth and ultra-high-net-worth investors.

In the context of asset allocation, how are private wealth managers integrating private credit into client portfolios — and why now?

In light of the uncertain macro and political environment, and the consequent reconsideration of portfolio strategies by managers, private credit is seen as one of the potential winners in terms of asset allocation. Private credit may guarantee risk-adjusted returns with recurring cash flow, low volatility and strong diversification. In the Italian market, we are seeing an increasing number of domestic and international asset managers offering to their clients the opportunity to invest in private credit; this trend is visible also in the retail segment, where managers, directly or through authorised third parties such as banks, are offering to Italy-based affluent individuals the opportunity to invest (subject to a minimum ticket) in private debt funds operating across various geographies and sectors.

Are there specific sectors or geographies in private credit that you believe offer compelling opportunities or risk-adjusted returns in 2025?

Italy is certainly one of the countries where private debt has more opportunities for growth. The country hosts a number of fantastic mid-sized companies with solid reputation and businesses. Given the forthcoming consolidation in the Italian banking sector, fuelled by the recent wave of M&A deals, some banking groups will have to manage their loan book to ensure compliance with regulatory requirements (e.g. concentration risks) and any consequent lending gap may present huge opportunities also for private debt lenders. In terms of risk-adjusted returns, real estate debt is the strategy with the most potential. In the Italian real estate market, banks are increasingly uncomfortable to underwrite development loans and, even when they can, the terms of the loans (including LTV) are not always palatable to the equity sponsors. Infra and tech are two additional sectors of the Italian lending market where private debt deployment is growing, and we expect this trend to continue.

How is the evolution of ESG and sustainability frameworks influencing private credit underwriting and client interest?

The evolution of ESG and sustainability frameworks is significantly influencing private credit underwriting and client interest. Investors are increasingly prioritising ESG criteria in their investment decisions, seeking to align their portfolios with sustainable and responsible practices. Private credit managers are incorporating ESG factors into their underwriting processes, assessing borrowers’ environmental, social, and governance practices. In terms of deal documentation, it is the norm to demand to the borrower the assumption of specific ESG-related information and reporting undertakings and other compliance obligations in order to allow the private debt lender to monitor the development of the transaction from an ESG standpoint. 

What emerging risks should private client professionals be mindful of when allocating to private credit today (e.g., liquidity, covenants, duration)?

Loose covenants are the bigger risk, especially in certain deals (e.g. large private equity deals). In terms of deal documentation, the drafting of certain financial definitions (e.g. EBITDA) is increasingly vague and borrower-friendly, and this may materially hamper the monitoring role of the covenants and delay the activation of the warning signs protecting the lenders.

How are private clients’ expectations shifting when it comes to transparency, reporting, or co-investment access in private credit funds?

Investors are demanding greater transparency and increasingly detailed reporting, especially on ESG metrics and monitoring instruments. In terms of co-investment opportunities, there is a growing interest in mezzanine debt and preferred equity.

In what ways are private credit managers adapting their offerings to suit the more bespoke needs of family offices and private wealth advisors?

Private credit managers are staffing their investor teams with people that have experience in managing relationships with family offices and private wealth advisors.

What innovations — whether fintech platforms, tokenization, or new fund structures — are you most excited about in private credit delivery to private clients?

For Italy, tokenization. Some important market players have recently launched innovative projects for the tokenisation of investment fund units.

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