24 September 2025
The post-2020 investment landscape has rewritten the rules for income, risk, and liquidity. For UK wealth managers, pension funds, and family offices, one question has quietly risen to the top of the agenda: Where can I obtain a consistent, uncorrelated yield without locking capital for a decade?
The answer, increasingly, is private credit, but not the version you knew five years ago. A new evolution is underway, one that blends institutional-grade returns with the agility and technological innovation demanded by today’s market. Welcome to Private Credit 2.0: a more modern, dynamic, and forward-compatible version of a once-niche strategy.
Private credit has grown from a niche allocation into a pillar of institutional portfolios, particularly in the UK. It’s no longer an exotic diversifier; it’s becoming a core building block of modern portfolios.
Post-Brexit, with gilts offering little until recently and equities facing valuation fatigue, allocators sought refuge in direct lending, asset-backed finance, and real estate debt. The appeal was straightforward: targeted uncorrelated returns in the 6–12% range, relatively low historical default rates, and tighter lender-borrower relationships compared to public markets.
But now, the game is changing again. Fund structures, technology adoption, and underwriting models are increasingly evolving. Managers are experimenting with tokenised assets, AI-assisted credit scoring, and NAV-based lending. The next phase, Private Credit 2.0, is about scale, sophistication, and accessibility.
UK allocators are not just increasing exposure to private credit; many are rebalancing away from private equity to do so. In effect, a slow structural rotation is underway, driven by liquidity realities and market cycles.
Here’s why:
· Sluggish exits: Private equity distributions have slowed, as IPOs and M&A deal flow remain tepid.
· Dry powder dilemma: With global PE dry powder surpassing $2 trillion, deployment is more complex and pricing is less attractive.
· Liquidity preferences: In volatile macro conditions, investors prefer instruments offering more regular income and optionality.
In contrast, private credit, primarily when structured in evergreen or semi-liquid vehicles, delivers more predictable cash flows with shorter durations, typically ranging from 3 to 5 years. This aligns well with both institutional and high-net-worth expectations in 2025 and beyond.
So what distinguishes Private Credit 2.0 from the legacy model? It’s not just a tweak in strategy; it’s a shift in infrastructure, delivery, and investor accessibility.
Fund managers and platforms are beginning to utilise machine learning to evaluate borrower creditworthiness, particularly in SME, consumer, and niche real estate markets. Algorithms can now ingest thousands of data points, going beyond traditional credit scoring, to support faster and more nuanced lending decisions. Adoption remains in its early stages, but momentum is building.
Although still in its early phases in the UK, some asset managers are actively exploring tokenised loan portfolios. The aim is to reduce counterparty risk, enhance transparency, and unlock potential secondary market liquidity in a historically illiquid asset class. This is more exploratory than mainstream - for now.
Select managers are merging private credit with features of equity or real asset exposure - including equity kickers, profit-sharing mechanisms, or inflation-linked coupons. These offer investors potential upside while retaining downside protection. The innovation curve is steep, but interest is growing.
The rise of Long-Term Asset Funds (LTAFs) in the UK reflects a regulatory and structural shift that provides sophisticated retail and advised investors with controlled access to illiquid assets, including private credit. LTAFs are enabling platforms to align private market access with liquidity and oversight expectations.
Private Credit 2.0 isn’t a buzzword - it’s a response to four converging trends that are reshaping portfolio construction. It signals a larger shift toward income-oriented resilience rather than relying solely on capital appreciation.
· Persistently high interest rates make cashflow-focused investments more appealing.
· Pressure on traditional 60/40 portfolios to deliver absolute returns.
· Technological disruption is gradually lowering the barriers to entry and improving scalability.
· Demand for diversification is rising amid persistent geopolitical instability and inflation.
In the UK, advisers and platforms are increasingly being asked about private markets. However, rather than the long lock-up PE funds of the past, investors are leaning toward solutions that combine yield, flexibility, and transparency.
Globally, private credit is maturing rapidly, but each region is evolving at its own pace. The UK’s innovation curve may be slightly behind that of the US, but it’s catching up quickly - particularly in areas such as regulation and distribution.
In the US, platform lenders are already raising billions through tokenised offerings and instant settlement protocols. In Asia, particularly in Singapore and Australia, the institutional adoption of credit platforms is accelerating as banks retreat from lending.
The UK sits somewhere in the middle, with a strong legal framework, a deep advisory market, and growing regulatory support. What’s needed now is product innovation and education. Wealth platforms are beginning to integrate feeder structures and evergreen wrappers into their menus, but scale and standardisation remain challenges.
Private credit has passed the test of legitimacy; the next phase will test scalability, innovation, and resilience. For UK allocators, whether private banks, family offices, or pension schemes, the opportunity is no longer to explore private credit. It’s to decide how much of it belongs in the core.
Private Credit 2.0 isn’t just a new asset class; it’s a new toolkit for navigating an uncertain future, and in 2025, that’s precisely what most portfolios need Back to News
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