Private Credit
Private credit refers to loans or debt investments made by non-bank lenders (like investment funds, asset managers, or private equity firms) directly to companies — outside of traditional banks or public bond markets.
In short:
Instead of borrowing from a bank or issuing bonds, a company borrows directly from a private fund (e.g., Blackstone Credit, Ares, Apollo, KKR Credit).
Key Characteristics
| Feature | Description |
|---|---|
| Lender type | Institutional investors (private credit funds, asset managers, insurance firms, family offices). |
| Borrower type | Usually mid-sized or private companies that can’t easily access public bond markets. |
| Loan structure | Can include senior secured loans, mezzanine debt, unitranche loans, or distressed lending. |
| Liquidity | Typically illiquid — loans are not traded on open markets. |
| Return | Higher yield than public credit (to compensate for higher risk & lower liquidity). |
| Risk | Credit, illiquidity, and concentration risks (since many deals are bespoke). |
Types of Private Credit
| Type | Description |
|---|---|
| Direct Lending | Most common. Loans directly to middle-market firms, often senior secured. |
| Mezzanine Debt | Subordinated debt with higher risk and higher return; may include equity warrants. |
| Distressed Debt / Special Situations | Investing in companies under financial stress or restructuring. |
| Asset-Based Lending | Loans backed by specific collateral (e.g., receivables, real estate, equipment). |
| Real Estate Credit | Lending secured by property assets. |
| Infrastructure Credit | Loans to finance infrastructure projects (energy, transport, etc.). |
📈 Why It’s Growing
After the 2008 financial crisis, banks reduced lending to riskier or mid-market borrowers due to tighter regulations (like Basel III).
→ Private funds stepped in to fill that gap.
Recent drivers:
- Higher interest rates → investors want stable, floating-rate income
- Institutional demand (pension funds, insurers, sovereign wealth funds)
- Corporate demand for flexible, fast, customized financing
Global private credit AUM (assets under management) has surpassed US$1.7 trillion (as of 2024) and is projected to reach ~US$2.5 trillion by 2027.
Example
A mid-sized company wants to fund an acquisition:
- Bank says no (too risky).
- Private credit fund offers a unitranche loan: a single, blended-rate loan combining senior + subordinated debt.
- The company gets quick financing; the fund earns a higher yield (~9–12%).
Pros & Cons
| Pros | Cons |
|---|---|
| Higher yields than traditional bonds | Less liquidity (long lock-ups) |
| Diversification for investors | Credit & default risk |
| Customizable for borrowers | Harder to value / price transparency |
| Lower volatility than public markets | Regulatory scrutiny increasing |
Major Global Players
- Blackstone Credit & Insurance (BXCI)
- Ares Management
- Apollo Global Management
- KKR Credit
- Oaktree Capital
- Golub Capital
- Blue Owl Capital