How Private Credit Exploded In The Last 10 Years

The Global Financial Crisis threw millions of Americans out of their homes and jobs, upending the entire economy. But for the private credit industry, it was actually an awakening of sorts.

Over the past few decades, U.S. banks’ problems have signaled opportunity for the private credit market, and that’s particularly true of the Global Financial Crisis and the collapse of Silicon Valley Bank last March. When banks have issues, U.S. businesses’ desire for capital rarely wanes dramatically, and that leaves room for alternate lenders.

At the Fortune Future of Finance conference on Thursday, Joshua Easterly, co-CIO and co-president of the global investment firm Sixth Street, explained how he was working at Goldman Sachs after the Global Financial Crisis in 2009, running a team that did public and private market transactions in distressed debt and special situations, when he came to the realization that the lending industry had changed forever.

“It was the intended consequence, not the unintended consequence of regulations after the Crisis,” he said of the private credit boom. “Policymakers…wanted to figure out how to diffuse risk away from the taxpayer, but you couldn’t crush the economy by reducing credit, and so private credit history grew.”

Easterly argued that the private credit industry has a “better model” than the banking industry when it comes to lending risk, because it holds more capital for loans on balance sheets. And that made him come to a startling realization in 2009. “Huh? I think I need to go find a new job,” he recalled saying to a colleague. “So [the move to private credit] was a little bit about necessity.”

Carey Lathrop, partner and chief operating officer of credit at Apollo Global Management, echoed Easterly’s comments, noting that when he started in the private credit industry “it was clear how hard it was to get things done that made economic sense” in public markets after the GFC.

00:00 - Teaser
00:16 - Where Private Credit Went Wrong
01:59 - Distinguishing Between High Yield Market Leverage Loans
03:28 - Problems With Regional And Smaller Banks
06:03 - Banks' Responsibilities Going Forward
07:52 - Competing With The Bond Market
10:53 - Culture Within Sixth Street
13:11 - Leaving Major Banks

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