Private Credit

What Is It?   

Private credit is money lent to companies by non‑banks: investment funds, pension funds, and specialist lenders like Ares and Blue Owl. 

Deals usually come with flexible terms but higher interest rates, reflecting the greater risk. After the 2008 financial crisis, banks tightened their purse strings, so private lenders stepped in. It has become essential for small and medium-sized firms that struggle to get bank loans and need access to cash quickly. 

Once niche, private credit has exploded. At the end of 2025, it had $3.5 trillion assets under management.

Why Should I Care? 

While private credit used to focus on small and midsize firms, it's now much bigger. Private credit funds can finance large buyouts and mergers, competing directly with investment banks. 

Crucially, this market is no longer exclusive to professional investors. Retail investors can now access parts of private credit through publicly traded business development companies (BDCs) that trade on major stock exchanges like NYSE and Nasdaq. Even non-traded funds are increasingly marketing to wealthy retail customers. 

Many alternative asset managers are also listed, making them available for stock investors.

What’s the Catch? 

Private credit promises higher yields than corporate bonds. But in investing, bigger returns tend to be paired with bigger risks. 

• Illiquidity: Loans are illiquid and valued privately, so they may lag reality 
• Leverage: Many borrowers already carry heavy debt  
• PIK loans: Some firms pay interest with more debt (payment-in-kind) or equity, not cash  
• Redemptions: When many investors want out at once, withdrawals can be delayed. Redemptions are often capped at 5% of the fund’s assets per quarter. 
• BDC risk: Publicly traded BDCs can swing sharply when confidence in the sector wobbles