Equities-based financing has emerged as a resilient segment within the broader private credit sector. This specialized financing approach, which allows asset owners to access liquidity financed against their existing equity positions, has gained prominence while investors seek stable options amid broader lending volatility.
Private debt assets reached a record value of $1.19 trillion by the end of 2024, according to Ocorian’s research. Within this growing market, alternative financing providers like EquitiesFirst have carved out a niche by offering clients with more illiquid assets capital flexibility to navigate uncertainty while maintaining exposure to long-term equity positions.
According to a Preqin survey, 58% of private credit investors indicated they would prioritize asset-based lending strategies in 2025, while a Moody’s study found that 44% of major insurers plan to increase their long-term allocations to asset-based finance and private placements. The scale of opportunity is substantial: McKinsey estimates the broader asset-based finance market at upwards of $20 trillion.
This approach has proven particularly valuable during periods of economic stress, when traditional credit channels often tighten.
Private Credit Response to Economic Cycles
Although we have not entered a global recession, current interest in private credit follows a pattern observed during previous economic downturns. According to a report from AIMA, private credit deployed over $100 billion in the U.S market in 2020 alone, providing credit at a time when traditional bank lending was tightening in response to the unprecedented conditions of the COVID-19 pandemic.
What’s notable is that private credit posted lower default rates than leveraged loans during that period, demonstrating the effectiveness of direct relationship lending during crisis scenarios. A Goldman Sachs report argued that this performance was largely attributable to improved credit assessment processes, stronger diligence procedures, direct access to borrowers, and the ability to influence corporate strategy to maximize recovery value.
The current economic climate, characterized by uncertainty surrounding interest rates, inflation, and U.S. tariff policies, could present similar challenges for traditional lending. For example, the World Trade Organization now projects global trade flows to decline by as much as 1.5% in 2025, reversing four years of steady growth. Many companies with strong fundamentals but temporary liquidity needs could turn to specialized private credit solutions during this period.
Market Volatility and Demand for Alternative Financing
When U.S. President Donald Trump announced sweeping global tariffs in early April 2025, financial markets reacted sharply. The S&P 500 nosedived almost 5% while the tech-heavy Nasdaq fell about 6%, with U.S. bank stocks tumbling to multi-month lows amid fears of a recession and slowdown in consumer spending. While markets have since rebounded amid shifting tariff policy, it remains unclear where those shifts will ultimately end, and this level of volatility can create difficulties for lenders assessing risk.
In this environment, private lenders could step in to fill crucial gaps, continuing a long-term trend that McKinsey identified in its report on private credit, which has grown tenfold since 2009. When U.S. leveraged-loan funds experienced a record $6.5 billion weekly outflow in April 2025, private credit remained relatively stable, demonstrating its counter-cyclical nature.
Traditional banks have pulled back from certain lending markets due to capital adequacy rules that often force them to reduce lending during economic downturns. In contrast, private capital providers like EquitiesFirst can maintain financing capacity throughout market cycles.
Unlike banks dealing with potential deposit runs or mutual funds facing redemptions, private credit providers can take a longer-term view of market conditions and maintain lending activities even during volatility.
The performance advantages of private credit, particularly in asset-based strategies, become more pronounced during periods of market stress. Morgan Stanley research shows that direct lending has historically provided higher returns and lower volatility compared to both leveraged loans and high-yield bonds in high interest rate environments, with average returns of 11.6% compared to 5% for leveraged loans.
The private credit ecosystem has also expanded beyond its traditional boundaries. While initially focused on supporting leveraged buyouts and middle-market corporate lending, private credit now encompasses asset-backed finance, infrastructure and project finance, and various forms of real estate financing.
Equities-based finance occupies a unique position within this ecosystem. It is designed to enable businesses and individuals to access liquidity without necessarily losing exposure to long-term positions, and can potentially help prevent or mitigate forced asset sales during market downturns. This function can be particularly valuable when market prices are depressed due to temporary factors rather than fundamental economic changes.
Long-Term Outlook
With $433 billion in dry powder available, according to KBRA research, private credit funds are well-positioned to meet financing needs arising from current market dislocations. Institutional investors continue to show strong interest in the asset class, with 92% planning to increase allocations according to AIMA.
But the growth of private capital has also raised some concerns about potential risks. One issue is the possible emergence of “zombie firms” – companies that generate insufficient profits to cover debt obligations yet continue to operate through refinancing. A recent PitchBook article warned that private lenders may be incentivized to delay recognizing losses in troubled borrowers by extending payment terms or providing forbearances.
These concerns must be balanced against the tangible benefits private credit provides. During the pandemic, private credit played a crucial role in stabilizing businesses that faced temporary but severe disruption. According to AIMA, private lenders “acted swiftly and decisively to support borrowers, providing flexible and creative financing” during the crisis. Companies with strong fundamentals and disciplined financial practices benefit from accessing diverse financing channels beyond traditional banks, but it is also key that private capital providers maintain specialized funding options tailored to specific and thoroughly understood risk profiles.
The established players in equities-based financing, with their track record of providing liquidity solutions across multiple market cycles, are particularly well-positioned to serve clients who need flexible capital access during uncertain economic conditions. For investors and businesses evaluating their financing options, specialized financial services companies that understand both traditional markets and alternative credit strategies may offer crucial advantages in navigating the evolving financial landscape.