Blackstone expects the private credit market to balloon to US$30 trillion in size, fuelled by lending for infrastructure projects and greater participation from pension funds.

“The opportunity set to finance the real economy, whether that’s credit cards, whether that’s equipment, whether that’s data centres, aircraft – that is roughly a US$30 trillion opportunity,” said Rob Horn, global head of infrastructure and asset-based credit at the recently-formed Blackstone Credit and Insurance, or BXCI, unit.

Private debt has expanded rapidly over the last decade to about US$1.7 trillion, mostly by funding private equity. “That is really just a sliver of the overall opportunity set,” said Horn.

Blackstone, which earlier this year predicted the market would hit US$25 trillion in size, is seeing a shift in private borrower type to higher-quality companies. On the investor side, more cash is flowing out of public markets, where “liquid benchmarks have deteriorated”, according to Horn.

“Not only can we get hard-asset collateral – which differs from what they get in the public market – but we also get a premium return,” said Horn.

Insurance companies, which were early investors in asset-based credit, still only have about 3 per cent exposure, he said. “We continue to see that accelerating,” he added.

Pension and sovereign wealth funds are also starting to take note of the better returns in private debt, which Horn expects to hit the mainstream with the addition of asset-based finance.

“From where it is today – whether it’s 0 per cent of your portfolio or 3 per cent – there’s certainly room to increase that towards 10 per cent, 20 per cent, depending on what your liability profile is,” said Horn.

Banks currently account for as much as 90 per cent of the asset-based credit market because they finance the real economy, but Horn expects private lenders to take share. Blackstone is looking to team up with banks, as it did earlier this year with Barclays, “in different areas that may be less core to their franchise”.

“The capital needs are just very, very large,” Horn added. “And what we are seeing is that the banks are really focused on areas that are core to them.”

Blackstone is focused on the energy transition and renewables – areas where it plans to invest US$100 billion – as well as digital infrastructure and residential real estate as the next big private credit growth sectors. Within asset-based credit, Blackstone finances credit cards, home improvement loans, single-family rentals and equipment.

The New York-based money manager also expects US$1 trillion to be spent on data centres over the next five years and sees growth and stability in the fact that many are contracted for up to 25 years with major technology companies.

Apollo Global Management, one of the biggest private credit firms, has predicted similar explosive growth for private credit. It has pegged the potential market at US$40 trillion as the market expands beyond its roots to areas such as auto loans and infrastructure debt.

As for the growing risks in private credit, Horn said there are still advantages to private credit over public markets, which he said can be more exposed to funding and dilution challenges, as well as price swings.

“We have significant credit capital within Blackstone credit and insurance to fund these assets, and provide great stability of capital over the longer term,” said Horn.