There’s an emerging asset class that has grown from around $250B in 2010 to about $2T today, and is set to expand by double-digit percentages in the coming years. The private credit market consists of private loans made by funds to privately-owned companies, with money originating from sources like pension funds, insurance companies, endowments and foundations. Private credit also leans heavily on direct lending and one-to-one relationships compared to traditional loans, where money that is lent out is funded through bank deposits or is syndicated among a group of investors.

Why so popular? In the aftermath of the banking crisis in 2008, the Fed drove interest rates to zero, driving all the players in the market to compete for the same small number of assets that had any yield. This created an environment where alternative investments could gain an edge, while at the same time, the big banks pulled back on the riskier areas of lending due to increased regulation, and higher capital and liquidity rules. It was part of a plan to move risks out of the banks where taxpayers have protection, and eventually saw private credit morph into one of the hottest investments on Wall Street.

As investors want more of it, the warnings have grown louder. 

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