How Private Credit Soared to Fuel Private Equity Boom

Private equity is booming, thanks in large measure to private credit, a rapidly growing slice of the debt markets where ever-growing pools of capital supplied by large investors are mobilized outside of traditional lending channels. Private credit has supplied the leverage that’s helped private equity buy the businesses that have expanded its collective portfolio to its current $4 trillion. Also known as private debt, non-bank lending, alternative lending or shadow lending, private credit’s growth mirrors the retreat by banks from lending to smaller or riskier borrowers after the financial crisis. Regulators and industry watchdogs have flagged concerns about the risks that lurk within this often-opaque market.

Globally, private credit, which includes distressed debt and venture financing, has ballooned from $42.4 billion in 2000 to $776.9 billion in 2018. By one estimate, the total is likely to top $1 trillion in 2020. More than half of the institutional investors in private debt are in North America (56% at the end of 2018), but the field is growing quickly in Europe (25%) and Asia (13%).