Private credit is lending that happens outside banks and public bond markets. Specialist funds raise money from insurers, pensions, sovereign funds and increasingly individuals, then lend it directly to companies, usually mid-sized and private-equity owned. The asset class has grown from a niche after the 2008 crisis into a market of roughly $2 trillion, taking share from banks that retreated under tighter regulation.
How it works
A private credit fund negotiates a loan directly with a borrower: typically senior secured, floating rate, and held to maturity rather than traded. Yields run several percentage points above comparable public bonds, compensation for illiquidity and bespoke risk. Managers charge fees on committed capital and performance, which is why the largest alternative asset managers have raced to build lending arms. The loans are marked by the managers themselves, not by a market price, which smooths reported returns and defers bad news.
The structural questions
Three questions define the current debate. First, valuation: because loans are marked internally, losses can surface late and suddenly. Second, liquidity: vehicles offering periodic redemptions hold assets that cannot be sold quickly, a mismatch that surfaces when investors head for the exit together. Third, opacity: risk migrated from regulated banks to structures where leverage and interconnection are harder to see, including banks lending to the funds that replaced them.
What to watch
Redemption requests at semi-liquid funds against their quarterly caps, non-accrual and payment-in-kind trends at listed BDCs (the public window into private books), fundraising totals versus deployment, and default rates as older vintages season in a higher-rate world. Stress in private credit rarely announces itself with a price crash; it shows up as gates, marks drifting down and rising PIK.