Why private credit is booming and competing with banks

Need a loan for a new factory or a buyout deal, but don’t like the terms your bank is offering? There’s a US$1.7 trillion (S$2.3 trillion) industry that’s ready to help. Private credit came of age after the 2008 financial crisis as an alternative to banks, at a time when regulators were clamping down on risky lending by deposit-taking institutions.

Today, it’s become a serious rival to mainstream lending for all kinds of businesses, from real estate firms to tech start-ups. Money is pouring into private credit funds from wealthy investors, retirement plans, sovereign wealth funds and even the banks that compete with them. Some have argued that private credit should become a permanent fixture in capital markets and investment portfolios. Yet it’s not clear how this opaque corner of finance will cope when the next big recession hits.