Why Smaller, More Complex Deals Are Attractive in Today’s Private Credit Market
General Atlantic Credit recently attended the Milken Institute’s Asia Summit 2025 in Singapore, where Tripp Smith, Global Head of GA Credit, joined the plenary panel “Global Credit Markets: Navigating Risk, Innovation, and Capital Flow Shifts” to discuss the forces shaping private credit today.
Below, he shares his reflections on where the most compelling opportunities lie and how the continuing influx of retail assets in the growing private credit market is creating opportunities in founder-led business. Watch the full panel here.
The private credit market is booming. The total size of the sector – which generally encompasses non-bank lending to mid-size businesses – has grown fivefold since 2009 and now stands at more than $1.3 trillion in the US, according to estimates by the Federal Reserve.1 Inflows from retail investors and reinsurance firms are driving much of the asset growth.
While many fund managers have welcomed the influx of capital, for some it is also posing a challenge. The increasing pressure to deploy assets based on inflows, rather than the attractiveness of specific deals, has bifurcated the market based on fund manager incentives. This was a key topic of conversation amongst peers at Milken’s Asia Summit 2025.
On one side is the portion of the private credit market that I believe has become largely commoditized. This is a market in which fund managers have to invest incoming capital as quickly as possible in order to maintain their dividend, regardless of whether they see signs of market froth. Given the pressure to deploy, fund managers in this space are increasingly focused on short-term deal flow rather than downside protection or other measures of long-term capital preservation.
Compromises – whether in the form of deal structure, credit quality, or lender business model – are inevitable given the dearth of available deals, leaving more money invested in higher-risk situations. Unlike private equity, in which the upside from one or two homeruns can make up for a lot of other sins, the returns in private credit are largely capped and leave far less room for error.
We believe that this era of forced deployment could impact quality of returns for many, especially in asset-light technology and healthcare business models that have become popular equity investments. While there may not be a wave of defaults, there will likely be an increase in payment in kind and other repayment models that generally do not work well for LPs, who are increasingly taking on greater borrower-friendly terms as this part of the private credit market and the high yield market converge.
What, then, should investors look for? We continue to see opportunities in the other side of the private credit market, in which fund managers are rewarded for having the patience and expertise to enter complex, smaller, non-sponsored deals.
We are actively looking for situations in which entrepreneur or founder-led teams seek capital for public-to-private or buyout situations, providing us with protection alongside the potential upside that comes from participation in long-term company building.
Given the bespoke nature of these deals, lenders are often in the position to demand features such as maintenance covenants, call protection, fees, and equity kickers that anchor returns with contractual cash yield without compromising other forms of potential gains. Companies that seek these types of deals often take the form of old economy businesses that own real assets, giving lenders a greater measure of confidence that their capital will be returned to them.
We believe this opportunity set – which more closely resembles the private debt markets that I have been active in over the last twenty years – offers significant potential for fund managers who are able to wait for the right deal at the right price, rather than allowing capital market flow to dictate their investment decisions. In this model, diligence, selectivity, and concentration dictate returns.
Incentives tied to performance, rather than deployment, will enable the best outcomes for both fund managers and LPs over the long run, and ultimately prove to be the more durable model for this expanding sector.
About General Atlantic Credit
General Atlantic Credit (“GA Credit”) is the dedicated credit investment platform within General Atlantic, a leading global investor. GA Credit leverages a demonstrated track record of strategic credit partnerships across market cycles and capital structures alongside General Atlantic’s more than 45 years of domain expertise and company-building capabilities. GA Credit’s Atlantic Park strategy provides flexible capital to high-quality companies seeking a strategic partner at various stages of the corporate and economic lifecycle. This partnership approach enables Atlantic Park to create customized capital solutions tailored to a company’s specific capital needs.
1 Federal Reserve. Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications. FEDS Notes, May 23, 2025.
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