Many miss how private credit’s expansion reflects genuine structural shifts in the global economy and financial system. The industry grew gradually by serving borrowers, especially midsized companies, left behind by public markets and many commercial banks. Over time, more companies have come to appreciate the confidentiality, flexibility, speed, and partnership approach of private lenders.  

In public markets, a bank underwrites traded loans or bonds for syndication, receives an upfront fee, holds very little of the loan and typically moves on.  This has the potential to create agency risk. But a private credit manager lends directly to a corporate borrower and typically holds the loan to maturity, getting paid over a number of years—only if the loan performs. These lenders generally know their borrowers personally. They foster relationships, rather than act as agents or creditors, and maintain an active dialogue with a constant flow of information. And private credit managers’ investors, including pension funds, insurance companies and individual investors, generally have access and resources to know exactly what assets they own and how they're performing.

Over three decades in private investing, I have witnessed many credit cycles and crises, including the Asian Financial Crisis, Long-Term Capital Management, the Dot Com bubble, the GFC, COVID-19, and the SVB bank failure, to name a few. Private credit has been tested time and again, demonstrating its stability because of its resilient structure. The corporate private credit industry has two decades of data showing remarkable consistency in credit underwriting: a roughly 1% rate of net realized loss annually, which compares favorably to 1.5% for high-yield bonds and matches the 1% annual net charge-off rate for syndicated bank loans¹.  

Consider the COVID-19 pandemic. Many rating agencies and public figures predicted that private credit default rates would rise to double digits. They were wrong. Spiking interest rates in 2022–23 elicited similar warnings about floating-rate loans causing more defaults. Wrong again. In both cases, while public markets froze and required central bank intervention, private credit portfolios saw remarkably low net realized loss rates. Robust due diligence, strong underwriting standards, and high selectivity conducted by scaled private credit investors resulted in investments to strong, resilient companies. Private credit also matches a fund’s long-term investor capital with limited leverage, so that private credit managers are rarely forced sellers. During the most recent banking crisis in 2023, banks pulled back from the market and C&I portfolios – in aggregate – shrank.  At the same time, private credit managers continued to lend, using available draw-down investor capital. Industry figures show that more than $400 billion in such available committed and uninvested capital exists today across the private credit industry, and our history shows that we are prepared to continue lending even if traditional banks retrench.

As private credit has stepped in to support the economy over the past decade, it hasn’t fueled excessive leverage in the system. Using the U.S. as an example, over the past decade, total leveraged credit, including private credit, has remained virtually unchanged at roughly 25% of U.S. GDP. Despite growth in private credit, risk in the system has not increased. In fact, I would argue using the same amount of leverage but shifting some of the exposure into private credit has diversified credit exposure and meaningfully reduced risk in the system. In other words, it has gained market share by providing a more efficient delivery mechanism for existing demand.