Q3 2025: Investment Grade Private Credit update
Robust issuance continued into Q3, reflecting solid supply–demand dynamics. As the IG private credit market grows, however, we take a closer look at the diverse array of origination channels in this investment universe, discussing the potential benefits, drawbacks and possible misconceptions surrounding these sources of deal flow.
Market statistics for the private placement market sourced from Private Placement Monitor, a standard proxy for the investment grade (IG) private credit market. Other market data supplied by Bloomberg.
Markets
The IG private placement market continued with robust issuance activity and high investor demand in the third quarter of 2025. Third quarter volume is estimated to be over US$35 billion (compared to third quarter of 2024 volume of US$23 billion) across all private placement markets. The market saw a particularly busy September, with the typical post-Labor Day pickup in activity contributing to the quarter's volume. Total volume for the first nine months of 2025 is estimated to be above US$110 billion, well in excess of the volume from the same time period of approximately US$95 billion, putting the year on pace to surpass the record-setting levels of 2024.
The persistent strength in issuances reflects, in our view, the ongoing appeal of private credit for both issuers and investors in the current market environment. Demand for IG private credit continues to outstrip supply, driven by traditional insurance company investors and the growing presence of asset managers in the market. The imbalance between supply and demand has intensified competition among investors, with several deals being 3–8-times oversubscribed. This strong demand, coupled with tightening spreads in the public markets, has led to further spread compression for the private market in the quarter. Overall, year-to-date private spreads have exhibited notable tightening compared to the same period last year. In this environment, directly sourced or agented deals typically provide higher relative value and continue to be a key area of focus for us.
Outlook
Looking ahead to the fourth quarter, we traditionally expect a December spread premium, as most investors would have completed their programs. However, if the year is of any indication, the insatiable demand is likely to persist, and we anticipate a continued competitive market for the fourth quarter of 2025. Our focus remains on credit underwriting discipline, but effective bid strategies will be crucial.
In focus
Understanding origination channels in private credit
The IG private credit market is shaped by access – and access is earned through relationships. These long-standing connections are the foundation for deal flow, much like in other areas of private credit. Yet, what distinguishes the IG segment is the breadth of sourcing options available to those within the network. Deals may emerge from broadly marketed transactions, club-style deals involving a handful of investors or direct origination efforts. Each pathway offers its own strategic value – club and direct deals in particular can unlock diversification and bespoke structuring opportunities, though they often demand deeper expertise resulting in higher structuring and illiquidity premiums for an investor. The importance of deal sourcing in IG private credit investing requires us to look deeper into the mechanics of these origination channels.
Unlike with syndicated bank loans, private placement agents in the IG private credit market do not participate in credit underwriting. Their role is limited to matchmaking – bringing issuers and investors together. This nuance elevates the importance of internal credit capabilities, especially the ability to assess risk across sectors and through varying market cycles.
Maintaining access to all sourcing channels is not just a matter of breadth - it’s a strategic advantage. In 2020, as public markets were heavily disrupted by the onset of the COVID-19 pandemic, the agented market became particularly attractive as public markets pulled back and illiquidity premiums widened. In contrast, 2021 favored club and direct origination, offering compelling opportunities for those positioned to act as issuers successfully adapting to changing market conditions.
At SLC Management, we believe that a nuanced understanding of origination channels is essential to unlocking the value in private credit. In this update, we’ll take a closer look at the three primary origination channels and explore how each contributes to a well-balanced investment strategy.
Direct origination: tailored solutions offering incremental yield
Sole-lender transactions, often called “direct origination”, involve a single investor providing complete debt financing to a borrower, a process that may or may not include the involvement of an agent. These deals are typically negotiated directly with the borrower, allowing for highly customized terms, covenants and structures. The potential benefits include:
- Bespoke documentation and covenants, enabling tailored risk mitigation. Additional structural features are typically present to act as guardrails for investors and potentially to extend duration.
- Direct borrower engagement, fostering long-term relationships and transparency.
- Deployment in scale to a specific transaction, as direct opportunities usually demand higher transaction volumes.
- Enhanced yield requirements, particularly in niche sectors or time-sensitive opportunities in which terms are highly customized. Comparing like-for-like deals among different origination channels, direct deals typically command a pricing premium, due in part to the less liquid nature of the securities.
The potential drawbacks of direct origination include:
- Scalability, as these types of deals are typically highly negotiated, there is less opportunity to “rinse and repeat.” This could limit the ability for further investment under similar deal terms.
- Resource intensity, requiring deep diligence, sector specialization and monitoring capabilities.
- Potential illiquidity, depending on the transaction structure, as direct issuances typically trade less frequently (or not at all) in secondary markets.
The myth that direct origination deals are inherently riskier overlooks the rigorous underwriting and alignment they often entail. Investors involved in this segment of the market require deep subject matter expertise in the relevant market. From a borrower perspective, transacting with an experienced investor provides comfort that market cycles and sector-specific dynamics are well understood, something that may not always be the case in the more broadly syndicated private credit market.
Club deals: partnership with scale
Club transactions involve a small group of lenders, typically between 2–5, who jointly provide financing. These deals are collaborative but not fully syndicated, allowing for shared diligence and risk while maintaining meaningful influence over terms. Potential benefits of club deals include:
- Diversification of exposure, reducing single-lender concentration.
- Efficient execution, with fewer parties than full syndication while still enabling some customization of deal terms.
- Preserved lender influence, especially when participants share underwriting philosophies.
Potential drawbacks include:
- Potential for negotiation complexity, as multiple lenders must align.
- Risk of diluted control, if roles and responsibilities aren’t clearly defined.
- Limited scalability, compared to syndicated structures.
Club deals are often suitable for transactions in which scale is needed but bespoke structuring remains important. The notion that club deals lead to “lowest common denominator” terms is largely unfounded when lenders are strategically aligned. In comparison to sole lender deals, club deals enable risk to be further tailored to the investor by selecting where capital is allocated across various classes of bonds.
Broadly marketed transactions: scale and access
Syndicated deals involve a lead arranger who structures the financing and invites a broader group of lenders to participate. These transactions are common in larger, more standardized markets and often involve multiple tranches and investor types. The arranger typically establishes documentation standards, coordinates diligence and manages the marketing process to achieve efficient distribution and efficient execution.
Given the broad investor base and access to capital, these deals are typically the most competitively priced, offering borrowers efficient funding and offering lenders portfolio diversification at scale. For investors, these transactions often represent steady deployment opportunities without requiring highly negotiated bespoke structuring needs. Potential benefits of syndicated deals include:
- Access to larger issuers and broader sectors, enhancing portfolio diversification and issuer track record.
- Liquidity and scalability, enabling efficient capital deployment with a more robust secondary market to enable post-funding liquidity.
- Shared due diligence and market validation, supporting risk management.
Potential drawbacks include:
- Less control over terms, especially for non-lead participants. Syndicated deals typically have fewer structural features.
- Potential for commoditization, with standardized structures and pricing.
- Susceptibility to market headwinds, especially during periods of economic or political volatility. Choppy markets can cause issuers and investors to pull back and divert activity toward other channels.
While syndicated deals may appear less bespoke, they can still offer attractive risk-adjusted returns – particularly when investors participate early or anchor the transaction. The myth that syndication limits alpha ignores the strategic value of scale, liquidity and access.
Origination as a strategic spectrum
The idea that one origination channel is inherently superior to another is a simplification that doesn’t hold up in practice. Sole lender deals aren’t necessarily riskier, club deals don’t always dilute influence and syndicated transactions aren’t devoid of alpha. Each structure serves a purpose, and when used thoughtfully, they complement one another.
At SLC Management, we approach origination as a strategic spectrum. Sole lender transactions offer precision and control, club deals provide collaborative strength and syndication delivers scale and access. Leveraging all three channels helps build resilient portfolios that reflect market opportunity, client intent and disciplined risk management. As origination continues to evolve – driven by sponsor relationships, sector dynamics and macro conditions – our focus remains on sourcing high-quality opportunities through a diversified and deliberate approach.
Sources: Private Placement Monitor, Bloomberg, 2025.
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