Private-Credit Fears Are Based on Four Myths

In Charles MacKay’s 1841 book Extraordinary Popular Delusions and the Madness of Crowds, he highlights how mass human behavior can lead to irrationality: “They go mad in herds while they only recover their senses slowly, one by one.”

That line feels apt today amid a wave of intense conjecture in the media and elsewhere about the risks embedded in so-called private credit. (Private credit is privately negotiated loans and debt sold directly to long-term investors — an alternative to bank lending and publicly issued debt securities.) Most of this noise has come from a misunderstanding of the risk in the market and the funding sources, and from a failure to distinguish “leveraged lending,” a small subset of the market, from private credit.