How Private Credit Became One of the Hottest Investments on Wall Street

Private credit has quickly become one of Wall Street's most popular investment classes in 2023. Alternative data platform Preqin projects this asset class will reach $2.7 trillion by 2027.

Several firms like Apollo Global and Ares Management have grown this market from just $250 billion in 2010.

This happened in part due to banks retrenching from the lending market after the Great Financial Crisis in 2008 with new regulations. It also has roots in the Federal Reserve's monetary policy of holding interest rates near 0% for a decade.

"We had a banking crisis in this country [and] the Fed drove interest rates to zero," said Lafayette Capital founder Damien Dwin. "That's created conditions where alternative investments could flourish, because of the additional yield that can be delivered."

However, this asset class is not without risk and not easily investable. You won't find private credit funds on Robinhood.

"It comes from pension funds, endowments and foundations, insurance companies, retail investors sovereign wealth investors," Dwin said. "So it is loans from a source other than deposits, usually to privately held businesses."

Watch the video above to learn more about what private credit is, how it has changed debt markets, and the risks involved.

0:00 — Intro
1:34 — What is private credit?
4:24 — Why private credit is booming
7:17 — Risks to the financial system
9:08 — What’s next?

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How Private Credit Became One of the Hottest Investments on Wall Street

[BrigetteWaltershield]

Private credit involves loans to private companies, often offering higher returns and diversification. Due to its complexity and risks, a financial adviser can help with due diligence, access, and risk management, ensuring investments fit your strategy and comply with regulations.

[MagdaleneM-fq]

One lesson I've learned from millionaires is to always put your money to work, no matter how small. Even investing €200 per month can compound to tremendous wealth over decades. The key is to keep going!

[Maverick]

I came across some statements from big investors expressing concerns that the stock market rally could be short-lived. My concern is my $600K stock portfolio is still recovering from a dip of almost 40%, how do I navigate these complex situations?

[quickcinemarecap]

00:02 Private credit is a fast-growing alternative asset class.
01:35 Private credit offers one-to-one relationships for borrowing outside traditional institutions.
02:44 Private credit has become a popular investment choice on Wall Street.
03:59 Private credit grew after big banks pulled back on lending post-2008 crisis
05:18 Private credit has stepped in to fill the void left by traditional banks due to regulations like Dodd-Frank.
06:33 Private credit fund managers prioritize top tier firms and managers for better returns and reduced risk.
07:50 Risks in the private credit space
09:02 Private credit is expected to be an interesting asset class despite potential market downturns.

[Vanessa]

We can't ignore the potential impact on portfolios. Bonds are often considered a safe haven, and if they crumble, investors like me might scramble. I’ve been investing for 11 yrs and my $1m portfolio has never been this depleted, how i do hedge this?

[realdeal]

No funding for small businesses and only for large private companies. No more incentives for the average person to open a business

[skyak]

"Basel 3, the endgame!" now playing in markets everywhere. Do we really want "shadow banks" to replace regulated banking?

[skyak]

It amazes me that nobody even mentions quantitative easing anymore when discussing these "trends". QE leads to negative real interest which has led to crazy high debt for poor returns. Central banks forced commercial banks to hold treasuries with negative real yield. Institutions like insurance and pensions were forced to do something stupid or nothing at all -they prefer getting paid, so they did something stupid!

[ADobbin]

In other words its credit the way loans used to be done before central banks and governments made themselves the only real credit lender. Its nothing new. I'm curious if they've gone all the way back to term payments rather than monthly.

[adamatid]

in fact private credit is the best solution to avoid liability, banks have transferred the credit risk by investing their customers' money in private credit funds and earn money through sales and management commissions... the game is very simple, but no one calls things by their name

[judyl.]

5:10 focus on 2 things: rated assets and anything with a perception of liquidity
6:10 the banks with bigger earnings and better balanace sheet typically the ones more likely to secure funding in the private credit markets.
6:55 the delta from a top ranked private equity
10:00 the next interesting would be distressed commercial real estate lending, rescue financing

[kwantator]

Do they really have to invent a new term for loan sharks?

[RoseBalerus]

Managing money is different from accumulating wealth, and the lack of investment education in schools may explain why people struggle to maintain their financial gains. The examples you provided are relevant, and I personally benefited from the market crisis, as I embrace challenging times while others tend to avoid them. Well, at least my advisor does too, jokingly.

[venture.brothers]

Lol also known as shadow banking
Interesting cnbc uses the term shadow banking when it wants to portray the industry negatively (parricularly markets like china etc) and the term private credit when referring to blackstone, oaktree et al

[ericnelius]

Anyone else notice the Cyrillic text on the hundred dollar notes at 2:58?

[nulnoh]

In the US, it's called private credit, which is a great thing. In China, it's shadow banking. It's shady and bad.

[romanlepricon]

The most sinister things about this video they have told you that private credit is more expensive than banks but no numbers to back it, can't tell which of the accusations of inappropriate lending banks dont themselves engage in

[detectiveofmoneypolitics]

Economic investigator Frank G Melbourne Australia is following this very informative content cheers Frank 😊

[the_big_dog]

There sure seem to be plenty of opportunities in private credit like investments run by Ares, Apollo, Blue Owl, KKR, and many others through BDCs and public funds (ARDC and the like). They vary widely in risk and return levels, and many are asset backed loans with a low loan to value ratio.

[ktktktktktktkt]

That jeopardy opening was terrible... I feel like that's a bit of a cop out.