How Private Credit Became One of the Hottest Investments on Wall Street

Private credit has quickly become one of Wall Street's most popular investment classes in 2023. Alternative data platform Preqin projects this asset class will reach $2.7 trillion by 2027.

Several firms like Apollo Global and Ares Management have grown this market from just $250 billion in 2010.

This happened in part due to banks retrenching from the lending market after the Great Financial Crisis in 2008 with new regulations. It also has roots in the Federal Reserve's monetary policy of holding interest rates near 0% for a decade.

"We had a banking crisis in this country [and] the Fed drove interest rates to zero," said Lafayette Capital founder Damien Dwin. "That's created conditions where alternative investments could flourish, because of the additional yield that can be delivered."

However, this asset class is not without risk and not easily investable. You won't find private credit funds on Robinhood.

"It comes from pension funds, endowments and foundations, insurance companies, retail investors sovereign wealth investors," Dwin said. "So it is loans from a source other than deposits, usually to privately held businesses."

Watch the video above to learn more about what private credit is, how it has changed debt markets, and the risks involved.

0:00 — Intro
1:34 — What is private credit?
4:24 — Why private credit is booming
7:17 — Risks to the financial system
9:08 — What’s next?

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How Private Credit Became One of the Hottest Investments on Wall Street