Introduction
Over the past two decades, private markets have become an increasingly important part of global investment portfolios. Institutional investors, family offices, and high-net-worth individuals are no longer limiting themselves to traditional public equities and fixed income, they are expanding allocations toward private equity and private credit, two of the most influential segments within alternative investments.
While both asset classes fall under the broader umbrella of private markets, they serve very different roles in portfolio construction. Private equity focuses on ownership and long-term value creation in companies, whereas private credit is centered on structured lending and income generation.
What Is Private Equity?
Private equity refers to investment in privately held companies, or the acquisition of public companies that are subsequently taken off the stock exchange. The goal is to improve operational efficiency, scale business growth, and eventually exit the investment at a higher valuation.
Common strategies include buyouts, growth capital, venture capital, and turnaround investing. Investors take an ownership stake and typically participate actively in strategic decisions. Returns come primarily from capital appreciation over a medium-to-long horizon, usually five to ten years.
What Is Private Credit?
Private credit refers to non-bank lending, where capital is provided directly to companies, infrastructure projects, or real estate developments through privately negotiated agreements. Structures include direct lending, structured credit, asset-backed financing, real estate credit, and special-situations financing.
Returns come mainly from interest income and structured repayment schedules, often with floating-rate mechanisms tied to market conditions.
For background on the asset class globally, McKinsey’s research on private credit is a good starting point: The rise of private credit and its future potential.
Key Differences Between Private Equity and Private Credit
Although both asset classes operate in private markets, their fundamental characteristics differ significantly.
Private equity involves taking an ownership stake in a business, while private credit represents a lending relationship. Private equity returns depend on business growth and eventually exit valuations, whereas private credit returns come from interest payments and contractual cash flows.
In terms of risk, private equity generally carries more risk due to its equity exposure and business uncertainty, but it also offers greater long-term upside. Private credit sits higher in the capital structure and is typically lower-risk relative to equity, trading some upside for more predictable, income-oriented returns.
Liquidity is another key difference. Both asset classes are illiquid compared to public markets, but private credit structures often come with shorter tenors and more clearly defined repayment schedules than private equity investments, which typically run five to ten years before an exit.
Global Growth: A More Nuanced Picture Than “Fastest Growing”
Private credit has genuinely been one of the fastest-growing corners of private markets over the long run. Global private credit assets under management roughly doubled in five years, surpassing $2.1 trillion in 2023, and industry researchers project the market could reach $4–5 trillion by 2030 as banks retreat from leveraged lending and institutional capital fills the gap.
That said, the most current data (McKinsey’s Global Private Markets Report 2026) paints a more nuanced picture than a straightforward growth story. The asset class is now described as “maturing” rather than simply expanding at speed: origination volumes stayed near record levels in 2025 but were concentrated in fewer, larger deals, spreads tightened, and a handful of high-profile defaults and liquidity strains at semi-liquid vehicles have increased scrutiny of credit quality. Pooled returns held up reasonably well, private credit’s average IRR was about 8.5% in 2025, up from 7.0% in 2024, in line with its longer-term historical average of roughly 8.8% but the environment is described as more competitive and precision-driven than in prior years, rather than uniformly the fastest-growing segment of private markets it once was.
Private equity, meanwhile, is also described in current McKinsey research as a maturing industry: the tailwinds of falling rates and expanding valuation multiples that drove strong returns over the past decade have largely faded, and outcomes going forward are expected to depend more on operational value creation (“alpha must be made”) than on macro conditions doing the work.
Institutional investors like insurers, pension funds, sovereign wealth funds continue to allocate across both asset classes rather than picking one over the other, and hybrid structures (untrenched financing, structured equity) that blend features of both continue to develop.
India’s Evolving Private Markets Landscape
India’s private markets have grown quickly, though the picture is more mixed month-to-month than a smooth upward line.
Private credit: India’s private credit market recorded roughly $12.4 billion in investments across 166 deals in 2025, up about 35% year-on-year from roughly $9.2 billion in 2024, according to EY’s Private Credit Report. Real estate led deal activity, followed by healthcare and industrials, with refinancing, acquisition financing, and capex funding as key themes. Domestic private credit managers rather than global funds accounted for most of both deal value and volume, reflecting a deepening local ecosystem.
Alternative Investment Funds (AIFs) broadly: Total AIF commitments registered with SEBI reached roughly ₹15.7 lakh crore (~$180+ billion) by December 2025, up about 21% year-on-year — a dramatic expansion from under ₹30,000 crore in 2015. Category II AIFs, which include private equity, private credit, and real estate strategies, dominate this growth.
Private equity/VC: The picture here has been more volatile in the short term. EY-IVCA data showed India PE/VC investment activity fell month-on-month at points in 2025 (for example, a 31% drop in August 2025 versus July), even as the multi-year trend across technology, healthcare, financial services, and consumer sectors remains one of expansion. This is a useful reminder that growth in private markets isn’t always a straight line, even in a fast-growing market like India.
For more perspectives on India’s evolving investment landscape, visit the Arbour Investments Insights page.
Institutional Allocation Trends
Globally, institutional investors increasingly treat private equity and private credit as complementary rather than competing allocations. Insurers, pension funds, and sovereign wealth funds have been expanding private credit exposure for its income stability, while private equity remains a core holding for long-term capital appreciation. Rather than choosing between the two, investors are integrating both for diversification across different risk-return profiles.
The Future of Private Markets
The line between private equity and private credit is blurring as the market evolves. Hybrid structures such as untrenched financing and structured equity investments combine characteristics of both. Both asset classes are expected to remain central to institutional strategy, but current research suggests the next phase will reward discipline and operational skill more than it rewards simply deploying capital into a rising market a shift from the tailwind-driven growth of the past decade to a more selective, “alpha must be made” environment.
For investors, the key isn’t choosing between private equity and private credit but understanding how each contributes differently to portfolio objectives income generation, capital growth, and risk management.
Conclusion
Private equity and private credit remain two foundational pillars of modern private markets. Private equity focuses on ownership and long-term value creation; private credit emphasizes structured lending and predictable income. Both have grown substantially over the past decade, though current data shows both segments entering a more mature, selective phase rather than a period of uninterrupted rapid growth. Together, they still offer complementary benefits for portfolio diversification and resilience across market cycles.
