By Aaron Filbeck, CAIA, CFA, CFP®, CIPM, FDP, Managing Director and Head of UniFi by CAIA™, and Claire Sawyer, Program Manager, UniFi by CAIA™


Bowser: “Not sure if you know who I am, but I’m about to rule the world”

The Super Mario Bros. Movie (2023)

Like Bowser’s castle, private debt is on fire right now. Assets under management have tripled from just under $500 billion to over $1.5 trillion and are expected to almost double in the next five years. What once was a niche sub-strategy of private equity or hedge funds has grown into a semi-mature industry. In the world of alternative investments, private debt ruled the world … or at least the flows and interest from institutional investors.

Penguin King: “That is but a taste of our fury. Do you yield?”

Bowser: “I do not.”

Interest rates hit record lows during COVID-19, further accelerating the adoption of these strategies. Generating income from safe assets was nearly impossible, and many investors were forced to move out on the risk spectrum. This has now reversed, and everything is yielding something (even cash!). So what role does private debt play for client portfolios and what are the major trends driving the industry today?

In a recent conversation with Sylvia Kwan, PhD, CAIA, CFA, Charles Gans-Lartey, and Jess Larsen, we explored this important question. In summary, three secular trends are driving the industry right now:

  1. The Impact of Silicon Valley Bank, Signature, and First Republic
  2. Going Big and Going Global
  3. Delivering Impact

Trend 1: The Impact of Silicon Valley Bank, Signature, and First Republic

Kamek: “May I lift the cover?”

Bowser: “Not yet. Pain is the best teacher.”

The panel believed that with the recent collapse of SVB, Signature, and First Republic, the role of private debt will only grow as banks continue to retreat from lending to middle-market corporations. The idea that more regulation and consolidation will occur is not an unrealistic expectation. This further exacerbates the trends that occurred post-GFC, when banks initially retreated from lending to these companies due to regulatory oversight and regulations like Dodd-Frank (US) and Basel III (International).

With more regulation, a bank’s ability to provide credit in the market will continue to be limited, driving more borrowers to private lenders. However, for borrowers, private loans are likely to be more expensive and have more favorable terms for lenders.

A lot of entrepreneurs will likely look to credit markets for their growth capital.

Trend 2: Going Big and Going Global

Princess Peach: "There's a huge universe out there ... with a lot of galaxies."

Another trend is the emergence of “mega-deals.” While private loans have historically been for small and middle-market organizations, larger companies are demanding capital from private lenders to support their operations.

Mega-deals are $1 billion+ financings that used to be exclusively done in public markets. However, given the scale of certain platforms and increased borrower demand, especially amongst private equity sponsors, mega-deals are becoming more commonplace in private markets.

Additionally, private debt is growing overseas, especially in Europe. GPs are increasingly introducing cross-border funds or even launching dedicated vehicles. Many of the dynamics the U.S. has experienced are taking place in Europe, specifically bank consolidation and increasing demand for private capital. However, the European market is roughly five years behind the U.S. in terms of growth and breadth of markets. Next in line is Asia, where GPs are looking to build out their capabilities across the region.

Trend 3: Delivering Impact

Luigi: “I assure you; We don't make messes, we fix them!"

Last, but certainly not least, are chances for private debt to provide impact. Despite being a smaller subset of private debt, impact strategies are growing and the opportunities are diverse. From securities litigation driving impact in human rights and climate change, to real estate debt funding affordable housing development projects, to farmland debt supporting the transition to regenerative farming, it’s not a huge leap to integrate impact into existing strategies, nor are these opportunities limited to the U.S.

Historically overlooked and underserved areas also present some of the best potential from a return perspective, and private lenders have an opportunity to lead the charge in bringing more resources and wealth to these communities.

Putting It All Together

Much attention continues to be placed on private debt strategies. While they can provide income and diversification benefits to a portfolio, it’s important to step back and start with what the client is trying to accomplish first. While it offers a wealth of benefits (pun intended), private debt is not a short-term or liquid investment, and the implementation may differ substantially from what clients are used to in more liquid investments.

Like yet another movie that rehashes tried and true characters that we all know and love, private debt is, at its simplest form, an update of what we already know. While understanding the important nuances and idiosyncrasies of these strategies are important, private debt may be an interesting first step for clients jumping in the illiquid alternative investments pool. Recurring cash flow, capital structure placement, and familiarity with how fixed income works may make it a better place to start relative to longer-dated assets. In other words, start with Royal Raceway before jumping into Rainbow Road.


Interested in learning more about private debt?
Enroll in the UniFi by CAIA™ Private Debt Microcredential here.


About the Authors:


As Managing Director and Head of UniFi by CAIA™, Aaron Filbeck CAIA, CFA, CFP®, CIPM, FDP, oversees content and product strategy for the UniFi by CAIA™ Program. Prior to this, Aaron was responsible for the strategic direction of CAIA Association's content agenda, thought leadership, and member education initiatives, and supported content development for the CAIA Charter Program. His work has been published by Oxford University Press and The Journal of Investing, and covers topics such as ESG/sustainable investing, liquid alternatives, commodities, and asset pricing/factor investing. He is a frequent writer and speaker on these topics. Aaron’s practitioner experience lies in private wealth management, where he served as portfolio manager, overseeing asset allocation, portfolio construction, and manager research efforts for high-net-worth individuals and institutional retirement plans. 

He earned a B.S. with distinction in Finance and a Master of Finance from Penn State University. He holds the Chartered Alternative Investment Analyst (CAIA), Chartered Financial Analyst (CFA), Certificate in Investment Performance Measurement (CIPM), Financial Data Professional (FDP) designations, is a CERTIFIED FINANCIAL PLANNER™, and holds the CFA Institute's Certificate in ESG Investing. He is a Past President of CFA Society Columbus and serves on the CFA Society Philadelphia Programs Committee. Aaron is an adjunct professor and serves on multiple advisory boards for Penn State University.


Claire Sawyer headshot

As Program Manager for UniFi by CAIA™, Claire Sawyer supports the design, development, and implementation of UniFi by CAIA™ programs. Prior to this, Claire supported the platform’s current and prospective institutional clients in her role as Relationship Manager.

Before joining the CAIA Association, Claire worked in federal grant management and administration for a research lab as well as B2B new client onboarding for a software company in her home state of California. She earned a bachelor’s degree in Legal Studies from UC Berkeley in 2015.