What Private Credit Is, and Why Investors Are So Worried About It

One hundred and three years ago, in his seminal book on investing, Edwin Lefèvre wrote: “There is nothing new in Wall Street.There can’t be because speculation is as old as the hills.”You’d be forgiven for forgetting that if you were paying to attention to the rise in stature of the once-hot realm of “private credit.”Private credit over the past decade gave every indication of being an enviable invention.

Major asset managers such as Blackstone and Apollo, as well as upstarts with names like Blue Owl, amassed a trillion-dollar pool of investor money to make loans to companies that they said traditional banks wanted to avoid.Private credit firms said they could take reasonable risks while also producing high returns for their investors.This year, however, the narrative has lurched in the opposite direction.

Traders, investors and even some private credit executives say the industry expanded far too quickly and extended tens if not hundreds of billions of dollars in loans to borrowers — particularly those in software-adjacent businesses — who won’t be able to pay them back.Since the start of the year, investors have gotten nervous about the prospect of rising defaults, and many of private credit’s biggest players have blocked investors from getting their cash back.This week, Blue Owl announced more limits on its largest publicly traded funds, including one in which investors asked to withdraw 38 percent of their money.How did this all begin?Private credit is essentially a rebranded version of high-interest-rate lending that was first popularized under the term “junk bonds” in the 1980s and later became a subset of “distressed” or “special situations” investing.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access.

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