Fueling Small and Midsize Business Growth
Private Credit
What is private credit?
Private credit is a broad term used to refer to capital that private funds loan to businesses through direct lending or structured finance arrangements. Private credit is an important part of US and European capital markets, providing vital funding to businesses of all sizes. It also provides diversified returns to investors, which include pensions, foundations, and endowments.
Types of private credit include:
Key resources
Key resources
Who benefits from private credit?
Private credit provides much-needed capital to companies of all sizes, enabling businesses to hire and retain talent, invest in long-term projects, conduct research and development, and build facilities. It also serves as a stabilizing force for the U.S. economy, aiding businesses in all market conditions. This is in contrast to banks and other traditional lending institutions, which historically have withdrawn or ceased to issue financing during periods of market stress, such as the onset of the COVID-19 pandemic or the Global Financial Crisis (GFC).
For instance, changes in bank capital requirements following the GFC caused many banks to significantly reduce lending to small and mid-sized businesses throughout the country. Private credit funds provided a lifeline to U.S. businesses by filling this gap. Today, private credit provides over $1 trillion in capital to businesses of all sizes in every industry.
By the numbers: how does private credit benefit your community?
Private credit supports job creation, research and development, and economic growth in all 50 states.
The returns generated by private credit funds also help pensions, endowments, and foundations that invest in these funds to support retirement plans, academic scholarships, and numerous charitable causes.
BILLION
$
10
California
BILLION
$
10
New York
BILLION
$
10
Pennsylvania
BILLION
$
10
Texas
How are private credit advisers regulated?
Advisers to private credit funds are registered with and regulated by government agencies, such as the Securities and Exchange Commission (SEC) in the U.S. These funds and their managers are held to the same robust disclosure and reporting regulations as other alternative asset managers, preventing fraud and mitigating systemic risk.
Private credit is stable
Private credit providers are not subject to liquidity risk. Credit funds receive capital from sophisticated investors who commit their capital to the funds for multi-year holding periods. The long capital commitment periods – reflected in fund partnership agreements – prevent runs on a fund and provide long-term stability for the fund and its borrowers.
Private credit funds are not implicitly or explicitly backstopped by the federal government. Therefore, taxpayers are not liable in times of stress.
Additionally, private credit presents minimal risk of contagion to other funds or the economy. If a credit fund fails, the losses are borne by that specific fund’s manager and investors. Further, the losses do not impact investments in other funds or otherwise ripple across the broader financial system.
A May 2023 Fed Financial Stability Report found that private funds’ lending activities have not threatened financial stability. These findings mirrored those in a 2020 Government Accountability Office report. Private credit default rates are generally limited due to the strong debt structure, contractual provisions that minimize default, and underwriting that protects the fund, as lender, and the sophisticated institutions that are invested in the fund.
Private credit in the news
Letter: Don’t use bank crisis as stalking horse to regulate credit funds
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
Private credit will fill the lending void left by Wall Street banks
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
Private Credit Firms Are Muscling Into Consumer Lending
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
