Private credit has become one of the most popular investment classes on Wall Street in 2023. Alternative data platform Preqin predicts that this asset class will reach $2.7 trillion by 2027.
Several companies, including Apollo Global and Ares Management, have helped grow this market from just $250 billion in 2010.
This is partly due to the withdrawal of banks from the lending market due to new regulations after the Great Financial Crisis of 2008. This has its roots in the Federal Reserve's monetary policy of keeping interest rates near 0% for 10 years.
“There was a banking crisis in this country. [and] “The Fed cut interest rates to zero, and that created a situation where alternative investments thrived because they could earn additional yield,” said Damian Dewin, founder of Lafayette Capital.
However, this asset class is not without risks and is not an easy investment. You won't find private credit funds on Robinhood.
“That's coming from pension funds, endowments and foundations, insurance companies, private investors, government investors,” Dewin said. “So this is a loan from a source other than deposits, typically to a privately held company.”
Watch the video above to learn more about what private credit is, how it has changed debt markets, and the risks involved.
