Private credit is a broad term for lending that occurs outside the public capital markets — bilateral or club loans arranged directly between lenders and borrowers, without public syndication, exchange listing, or rating agency involvement. The asset class encompasses direct lending, mezzanine finance, distressed debt, real estate credit, infrastructure debt, specialty finance, and a range of other lending strategies, all sharing the common characteristic of being arranged privately.
Private credit has grown dramatically since the 2008 financial crisis. As banks pulled back from certain types of lending — particularly leveraged finance for private equity-backed companies — private credit managers stepped in to fill the gap. The sector is now estimated to manage several trillion dollars in assets globally, with direct lending to middle-market companies as the largest subsegment.
For borrowers, private credit offers several advantages over public market financing: speed of execution (private lenders can close in weeks vs. months for a public bond deal), certainty of close (no syndication or market risk), flexibility (lenders can structure around the borrower's needs), and confidentiality (terms are not publicly disclosed). These benefits come at a cost: private credit is typically priced at wider spreads than comparable public market alternatives.
For investors, private credit offers the potential for higher yields than public bonds of comparable risk, floating-rate structures that provide natural protection against rising interest rates, diversification away from public market volatility, and in some structures, seniority and security that reduce loss severity in distress. The trade-off is illiquidity — private credit investments are typically locked up for multiple years.
The private credit market encompasses managers ranging from large alternative asset managers with hundreds of billions in AUM to boutique direct lenders focused on specific niches. Business Development Companies (BDCs) provide retail and institutional investors with access to private credit through a publicly traded or non-traded fund structure.