Private credit is a quickly growing alternative asset class. Private credit involves debt financing provided by non-bank lenders to private companies. Non-bank lenders in the private credit industry typically refer to private investment funds, asset managers, institutional investors, and insurance companies. There is a diverse range of financial products in the private credit market that can be tailored to the specific needs of a particular corporate borrower.

As a result of increasingly burdensome regulations and tightening lending standards, traditional banks have gradually retreated from lending to middle-sized companies. Non-bank lenders have seized the opportunity to help fill the void for lending to small and middle-sized companies that are not publicly traded. Major players in the private credit market include Apollo Global Management, Ares Management, Blackstone, Blue Owl Capital, Carlyle, Golub Capital, HPS Investment Partners, KKR, Oaktree Capital, and Wellington Management.

Over the past 15 years, private credit has grown over tenfold. In 2024, the global private credit market reached a valuation of approximately $1.5 trillion in assets under management. While many of the major private credit investors are located in the United States, Europe has demonstrated strong potential for growth. It is predicted that the global private credit market will reach a valuation of $3.5 trillion in 2028.

Some common categories of private credit include direct lending, distressed debt, special situations debt, bridge financing, venture debt, and asset-backed lending. The most common category is direct lending, which has also yielded some of the highest returns. Other diverse categories of private credit products include infrastructure debt, equipment finance, residential mortgages, and aviation finance.

While many private credit investors focus on direct lending, they can also find origination opportunities by purchasing portfolios of loans in the secondary market. For example, in 2023 Ares Management acquired a $3.5 billion specialty finance loan portfolio from PacWest Bancorp. The portfolio includes a broad range of asset-backed loans such as consumer loans, auto loans, and commercial real estate loans.

Many traditional banks are partnering with private credit lenders to provide debt financing to companies. This provides traditional banks with exposure to potentially massive returns on private credit products. In return, private credit fund managers are able to gain access to the strong corporate borrower relationships of traditional banks.

There are numerous recent examples of partnerships between bank and non-bank lenders seeking to benefit from the booming private credit industry. In May 2024, Goldman Sachs announced that it had raised $21 billion for private credit investments focused on direct lending. In September 2024, Citigroup and Apollo Global Management announced a $25 billion private credit, direct lending platform partnership. As yet another example, in September 2023 Societe Generale and Brookfield Asset Management announced a strategic partnership to set up a $10.8 billion private credit fund.

Insurance companies have also been actively involved in seizing private credit investment opportunities. Private credit investments by insurance companies are typically held in separately managed accounts (SMAs) to increase transparency and tax efficiency. Partnerships between traditional banks and insurance companies in the private credit space is likely to be a growing area in the future.