(Bloomberg) -- Ares Management boss Mike Arougheti sees the $1.5 trillion private credit market doubling to $3 trillion within five years, with a great deal of that coming from banks’ balance sheets.

“We’re still massively overbanked,” the chief executive officer, co-founder and president of one of the world’s largest private credit firms said at the Global Credit Forum held at Bloomberg’s London Office. “The reality is, if all we do is finance the existing equity in the market, we will get” to the next $1.5 trillion.

Arougheti also sees private credit deal sizes getting larger. He estimated that, given the capacity in the private credit market today, the industry could finance an $8 billion to $10 billion club deal.

That’s a big step up from the current record — a $5.3 billion loan package funding Vista Equity Partners’ refinancing of fintech firm Finastra Group Holdings Ltd.’s debt in August. That deal was led by private credit behemoths Oak Hill Advisors and Blue Owl Capital and was made up of a group of at least 15 lenders including Ares.

The size of the Finastra deal — and Arougheti’s prediction — underscore the rapid rise of the asset class, in which $1 billion private loans would have been rare as recently as four years ago.

Arougheti’s remarks also come as an influx of major players rush to the private credit market, which has already swollen dramatically in size, as higher base rates and widened spreads yield larger returns than ever before for credit funds.

Complex Picture

But while the market narrative is often about private credit competing with banks for deals, Arougheti said it isn’t as simple. “It’s not a zero-sum, we win, banks lose thing,” Arougheti said. “When banks are in transition, it’s a good time to be in private credit.”

And some banks are also dipping a toe into the market. Societe Generale SA is launching a €10 billion fund with infrastructure giant Brookfield Asset Management, while Barclays Plc is following JPMorgan Chase & Co. by using balance sheet cash to compete with private-credit funds.

Still, a handful of asset managers are refusing to be dazzled by direct lending. Swiss Life’s investment arm and Scotland’s Baillie Gifford are avoiding the craze in part because of transparency fears, a lack of liquidity and the good returns on offer elsewhere, while Abrdn Plc says it lends to investment-grade borrowers, but not to the riskier companies that make up much of this market.

NYSE-listed Ares Management Corporation has $378 billion in assets under management and a market capitalization of $31.8 billion. Arougheti himself received $20.9 million in carried interest cash distributions and management fees in 2022, according to data compiled by Bloomberg.

“I think one of the reasons private credit outperforms is because of that control, that element of bilateral relationships, where everyone is aligned to maximize the value of the enterprise, and no one is coming in below par,” Arougheti added.

(Corrects market capitalization in the penultimate paragraph of the story, which was published on Sept. 21.)

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