As BlackRock storms into the private credit arena, longtime players aren't worried about the space getting too crowded

• BlackRock's acquisition of HPS brings the world's largest asset manager to the exploding sector.
• While there have been worries about an oversaturated market, industry vets say there are plenty of opportunities.
• "The market is proving that private credit has a reason to exist," said Carlyle exec Nicola Falcinelli.

Tens of billions poured into private credit funds in the third quarter — and then the world's largest asset manager joined the party.

BlackRock's $12 billion announced acquisition of private-credit pioneer HPS Investment Partners adds an 800-pound gorilla to a sector already full of similarly aggressive primates. The $11.5 trillion asset manager has not been shy about its ambitions in the private markets, and there are worries about too many dollars chasing too few deals.

Other finance giants are trying to get in on the private credit action, State Street is shopping around for a private credit firm, and Citi has linked up with Apollo for a $25 billion credit fund. Singapore sovereign wealth fund Temasek is forming a $7.5 billion private credit platform. Many smaller asset managers and hedge funds have also launched funds in recent years.

Despite everyone looking to get a part of Wall Street's hottest market, longtime private-credit players are not feeling crowded. Managers are focusing on how private credit is servicing certain parts of the market that are set to grow, such as M&A, or differentiating themselves from peers.

"The market is proving that private credit has a reason to exist," said Nicola Falcinelli, the deputy head of European private credit at Carlyle, at Edelman Smithfield's annual investor summit Thursday in London.

With M&A activity expected to tick up thanks to the reelection of Donald Trump, private credit providers will be in demand to finance deals, executives said.

"Private credit has done a really nice job of filling cracks in" within the deal financing market, said Matthew Theodorakis, the cohead of European direct lending for Ares Management, at the Edelman event.

Falcinelli pointed to the "long-term trend of banks retrenching from financing M&A" as validation for the expansion of his sector.

"There's healthy competition between capital markets and private credit" across different markets, he said.

Money is being thrown around

From some points of view, this competition has given a lifeline to companies that may not deserve it. April LaRusse of London-based Insight Investment, which manages $665 billion across different vehicles, said the number of companies defaulting on their debt held steady in recent years despite interest rates rising.

Typically, an interest-rate increase would squeeze troubled companies to the point that they're unable to pay their creditors. Instead, LaRusse said, there's plenty of capital willing to extend a lifeline.

"High-yield companies have had money thrown at them by private debt and equity companies," she said.

With the expansion of players in the lending space, there's more of a focus on putting money to work in the right opportunities, not just owning a broad swath of the market, said Putri Pascualy, client portfolio manager for private credit within Man Group's Varagon unit, a $11.8 billion private credit firm the asset manager purchased last year.

Managers will "differentiate through alpha, through credit selection," she said at an event at Man Group's London headquarters. For her, "cash is king" when it comes to judging the quality of borrowers — she wants to see a decent amount of liquidity on companies' balance sheets.

Additionally, despite the industry still being a very human-run space of finance, Pascualy said Man is setting itself apart with its artificial intelligence tools. Blackstone similarly has used its AI tools to pitch insurers looking for private credit options.

At Man, the firm uses these tools to scan credit documents and weed out human error, Pascualy said, noting the firm is just at the beginning of seeing what parts of the process they can make more efficient.

No matter what, though, she said, the firm and others will expand in the space.

"The private credit universe globally will continue to grow," she said.