About 61% of fund-limited partners reported they'll expand their asset allocation to private credit this year, according to the S&P Global Market Intelligence Survey. SLR Capital Partners co-founder Michael Gross joins Catalysts to discuss the appetite for private credit and its outlook as interest rates fall.

"I think investor interest in private credit is here to stay because if you compare returns of private credit to liquid credit, they're better-structured deals. And banks more and more are being pressured to get away and out of that business. So private credit is filling that void," Gross tells Yahoo Finance.

Gross explains that "the bar should always be high in private credit," as lenders don't like to take risks. However, he notes that the bar is "higher today than ever because we're late in the economic cycle." As companies face increased pressure, private credit managers look for alternative ways to lend — like lending against hard assets, for instance — that do not depend on a positive economic backdrop for performance.

As the Federal Reserve kicks off its rate-easing cycle, he believes that cash-flow lending will come under pressure. Meanwhile, sectors within private credit like factoring, equipment leasing, and life-science lending will provide high returns. "So we see real opportunity in continuing to lend to those companies and filling the void where the regional banks are being forced to exit," he adds.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl