(Bloomberg) -- For private credit lenders, a focus next year will be on achieving scale, as the average size of transactions swell and the gates open for mergers and acquisitions, according to Blackstone Inc. and Blue Owl Capital Inc. executives.
“Having scale, and the ability to offer solutions to your clients across liquid, private and structured credit” remains massively important, Michael Zawadzki, the global chief investment officer at Blackstone’s credit and insurance unit, BXCI, said during Bloomberg Intelligence’s 2025 credit outlook conference Thursday.
That scale will help asset managers capture private debt opportunities ushered in by a pickup in M&A activity over the next year. And as private credit expands into investment-grade direct lending, asset-based finance and other areas like data centers, serving as a one-stop shop will only help these firms win deals.
“People don’t realize that, for the last three years, we’ve been hovering at 30-year lows in terms of M&A volume as a percentage of nominal GDP,” Zawadzki said. This will pick up “as rates come off, as macros remain resilient, and as dry powder continues to build up.”
And consolidation among lenders, such as BlackRock Inc.’s planned acquisition of HPS Investment Partners for $12 billion, underscores that trend toward scale. The deal is a “defining transaction,” according to Jonathan Lamm, the chief financial officer of Blue Owl’s business development companies.
There are “only going to be a select number of winners” within the industry, Lamm said. The deal will also give BlackRock a seat at the table, with about $220 billion in private credit assets.
When you’re the “largest asset manager in the world and you do not have a meaningful presence in a core asset class that’s been growing, it’s a necessity,” Moody’s Ratings’ global head of private credit, Ana Arsov, said on the panel, referring to the BlackRock-HPS deal, which is expected to be finalized by mid-2025 pending regulatory approval.
Investment-grade debt is also a target for BXCI in the near future, especially as high-grade corporate bond spreads are nearing historically tight levels. Areas where BXCI expects to see growth in the long term include data centers, the energy transition, equipment finance, homeowner lending and consumer finance.
Investors are looking for ways to get extra spread without tacking on more risk, which private credit can provide, Zawadzki said. The credit world is “much earlier” in the transition to private debt than some think, he added.
(Updates to include additional areas of growth for BXCI in eighth paragraph. A previous version corrected the spelling of Zawadzki’s name throughout.)
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