The private credit market $1.5 trillion
Turbulence from Trump's tariffs are making it harder for Wall Street to offload debt.
Risk-tolerant direct lenders see opportunities, for now.
Copilot:
Private credit and direct lending are closely related, but they're not exactly the same thing.
- **Private Credit**: This term refers to a broad category of investments in debt that is not traded on public markets. It includes a wide variety of lending strategies, such as mezzanine financing, distressed debt, and asset-backed lending, in addition to direct lending. Private credit typically targets higher returns compared to traditional fixed income, partly due to the lack of liquidity and the higher risk involved.
- **Direct Lending**: This is a subset of private credit. It involves non-bank lenders (like private credit funds) providing loans directly to companies, often for specific purposes like financing a merger, acquisition, or expansion. These loans are typically not syndicated or traded, which differentiates them from traditional loans or bonds. Direct lending has grown substantially in recent years, filling a gap left by banks after stricter regulations post-2008 financial crisis.
So, while all direct lending is private credit, not all private credit is direct lending. It's a bit like the relationship between rectangles and squares.
Howard Marks, the co-founder of $172bn investment group Oaktree Capital Managemen
The private credit market, which includes loans for corporate takeovers, has grown to about $1.5tn from roughly $440bn a decade ago. Fundraising has been brisk, eclipsing $150bn every year since 2019.
Private credit has ballooned since the 2008 financial crisis prompted regulatory reform that pushed banks away from speculative lending and new lenders stepped in to fill the void, including many backed by private equity titans such as Blackstone, Apollo and KKR.
Oaktree has expanded beyond its roots in distressed debt and now invests across credit, private equity, real assets and publicly listed equities. The firm is in the midst of a fundraising push as it looks to raise $10bn to finance large private-equity backed takeovers.
FT 14 May 2023
https://www.ft.com/content/7ee93e71-e6b1-40e9-8e81-9b9a7054274e
Tip of Debt Iceberg
Since the start of 2008, private credit has grown almost sixfold, to $1.5 trillion, according to the IMF—bigger than the high-yield bond or leveraged-loan markets.
Greg Ip WSJ 26 April 2023
Englund: Tip of Debt Iceberg (englundmacro.blogspot.com)
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