Given private credit’s rapid growth, coupled with an economy potentially on the verge of a credit cycle, the increased attention and scrutiny on the industry is warranted. However, KBRA notes that some of the press coverage and market research regarding private credit is often ungrounded in data or lacking a nuanced understanding of how the market evolved and functions. Most notably, much of the research from traditionally public market sources has overlooked how private credit diffuses, rather than amplifies, risk to the global financial system.
This paper focuses on the roughly $1.6 trillion direct lending portion of the private credit market. We explore the reasons behind the segment’s rapid growth—detailing how this is the direct and intended result of post-global financial crisis (GFC) regulatory actions—and outline why we believe the outcome has bolstered systemic strength. The paper also highlights the industry’s evolving contours of risk, as well as likely mitigants, involving…