Need a loan for a new factory or a buyout deal, but don’t like the terms your bank is offering? There’s a $1.7 trillion industry that’s ready to help. Private credit came of age after the 2008 financial crisis as an alternative to banks at a time when regulators were clamping down on risky lending by deposit-taking institutions. Today it’s become a serious rival to mainstream lending for all kinds of businesses, from real estate firms to tech startups. Money has been pouring into private credit funds from wealthy investors, retirement plans, sovereign wealth funds, and even the banks that compete with them. Some have argued that private credit should become a permanent fixture in capital markets and investment portfolios. Yet it’s not clear how this opaque corner of finance will cope when the next big recession hits.
The origins of private credit can be traced back to the 1980s, when insurance companies began lending directly to companies with strong borrowing records. Today, private credit funds deploy billions of dollars in a variety of investing strategies:
