In the last 10-15 years private credit has become more and more popular, creating a competitive market for alternative lending to that of the high street banks. With greater dexterity, faster decision-making processes, and more appetite for complex and special debt situations – it’s an ever-evolving market.

In 2025, this market is experiencing a change (for better or worse), characterised by sectoral shifts, evolving investor preferences and macroeconomic and geo-political issues – but there is cautious optimism being exercised amongst those funds we speak to frequently. 

What does this mean in simple terms? In short, there is lots of money around, but it isn’t as easy as it could be to get a hold of it. 

Private equity: Balance and challenges

According to a report issued by KMPG, after a challenging start to 2024, the UK’s private equity (PE) market recovered, with total deal volumes increasing by 4.4% and deal values rising nearly 12% year-on-year. 

The second half year rise in activity was driven by falling interest rates, lower inflation, and political stability following the General Election. Particularly, mid-market deal volumes reached their highest level in over three years during this period, although the average deal size decreased by 9.1% due to a rise in bolt-on acquisitions and smaller transactions.

Despite this rebound, private equity firms remain cautious. A survey by Investec revealed that 58% of general partners (GPs) anticipate a decline in deal valuations, and nearly half expect lower returns over the next two years. Moreover, fundraising timelines have lengthened, with 58% of GPs expecting their next fund to take more than three months longer to close than previous ones.

So, whilst PE continues to do what is does best, adapt to market trends, there are still some hurdles to jump over before a less cautious optimism can be exercised.

What this means for businesses, is that series B and C round funding, or further investment following seed and additional working capital investment – won’t be as easy to obtain. 

We have seen a large increase in the number of boards needing advice where their private funders are not willing to either continue to invest or be the main sponsor in the consortium of investors, due to poor or no revenue activity. 

In other words, people aren’t getting something for nothing, or at least just based on a solid attractive proposition and forecasted numbers. 

Private credit: Growth and competition

According to Regal Capital, a leading research and economic analysis archive, private credit continues to attract investor interest and grow, with UK-focused funds raising £15.2 billion in 2024, marking a 14% increase from the previous year. 

The growth was driven by higher interest rates, which have made private credit more appealing compared to traditional fixed-income investments. 

However, as interest rates begin to ease and syndicated loan markets reopen, competition for deals is intensifying. This suggests that private credit managers will need to adapt their strategies to maintain their position whilst the price structure will likely reduce for the customer to cater for the abundant supply of money.

What this means for the consumer, or for UK businesses, is that there should be more options available to them if they have the right ingredients to attract the investment or lending they need. But not on the same historical performance. Real revenue and real growth will be needed. 

Green and tech-focused investments: Has it all been forgotten about? 

The UK government is actively seeking to attract global green investors, particularly in the offshore wind sector. The Guardian states that £300 million has been earmarked for windfarm development, and with a 60-country energy summit held in London this year, the UK aims to reassert its leadership in low-carbon energy. 

Interestingly this initiative is seen as part of a broader strategy to enhance investment stability by offsetting against the volatile policy landscape currently unfolding in the U.S and the causation elsewhere.

So, it’s not all forgotten about, not for the UK at least – but there have been some softening of stances and revised targets because of more pressing issues such as tariffs, stock market volatility and current and potential wars, both literal and economical. 

That said, in the private equity space, investors are increasingly favouring sector-focused funds over a more general approach. What this means is sectors such as life sciences, fintech, and AI-driven business models are seeing intensified interest, which reflects the predictions on where the main growth areas in western economies will be over the next 10 years.

There are still more bureaucratic issues to address such as loosening regulation to unlock at lot of the dry-powder in the market – but all signs point towards a willing for green investment and a strong desire for tech-focused investment.

The Trump influence 

The Trump team envisages that America’s external deficit will reduce due to fiscal tightening and an increase in domestic investment that revives manufacturing capacity, with limited economic pain. However, this seems highly unlikely, given the ripple effects in the stock markets over the last few weeks and the attitude of China and others in response to recent tariffs imposed on them. Almost no economist is saying that is will be easy. 

According to NextRound Ai, a leading strategic funding adviser, US investors continue to play a significant role in the UK private equity market, accounting for over half of the total value of private equity transactions in 2024. This sustained interest underscores the UK’s attractiveness as a destination for overseas capital.

However, this could of course be under threat, as more and more private savings may be pumped back into the EU and other economic blocks. The dramatic volatility in the stock market, the rise in people investing in gold, and the subdued interest in the U.S bond market has meant the dollar has weakened.

This has the potential to force investors to re-think their capital allocations. Between Europe and Canada alone, they hold over $17trn of US securities; adding Japan takes this to over $20trn. American political and social upending of the global order asks serious questions of these asset owners. Does it make sense to be so heavily positioned in US equities amidst such political and economic turbulence?

This could lead to more and more private savings, being moved out of what has always been a safe haven in the U.S bond market, and re housed in other economic blocks to get a return. 

If this were to be the case, the chances are, funders may also look to reallocate and deploy elsewhere which in turn could benefit the UK market and UK businesses. 

What are the likely outcomes and ongoing pressures? 

Despite positive trends in private funding, the UK economy faces several ongoing challenges that could impact the funding landscape. These include the recent rise in National Insurance, higher-than-expected inflation, an unresolved trade deal with the U.S., increased defence spending, the threat of war, and volatile stock markets.

The private sector contracted for the first time in 18 months due to a sharp decline in export orders, driven by global trade tensions and tariff policies. Additionally, according to EY, the rising cost of debt is projected to result in an additional £20-25 billion in refinancing costs for UK listed companies by 2027, potentially affecting corporate investment strategies. 

Scott Bessent, the U.S Secretary of the Treasury, has suggested that the explosion in private credit can be understood as a natural reaction to the regulatory straitjacket that has been imposed on banks. So more of the same upward trajectory in this sector may be on the cards. 

But while private equity and private credit sectors show signs of recovery and growth, challenges such as economic pressures and evolving investor preferences continue to shape the direction of travel. 

What does all this mean for the UK businesses? Whilst things aren’t great, they aren’t perhaps, as bad as they first seem. 

There is money and appetite there if you can show your worth. No easy task.