What Is Private Credit? A Complete Guide to the $2T+ Market
Private credit has rapidly grown into a $2 trillion+ global market, becoming a pillar of modern finance. Unlike public debt or traditional bank loans, private credit strategies provide capital directly to companies or projects through customized, negotiated structures. This guide explains what private credit is, the current private credit market size, key strategies (like direct lending, CLOs, and mezzanine debt), major players, risks, and where growth is headed.
← Back to GuidesWhat Is Private Credit?
Private credit refers to debt investments made outside of public markets. Instead of issuing bonds that trade openly, funds and asset managers extend loans directly to companies, real estate borrowers, or projects.
- Direct lending to middle-market companies
- Asset-based lending (ABL) secured by receivables, equipment, or inventory
- Mezzanine financing with subordinated debt and potential equity kickers
- Collateralized Loan Obligations (CLOs) that package leveraged loans into securities
The Rise of Private Credit
- Post-2008 regulation: Basel III and Dodd-Frank pushed banks to retreat from certain lending.
- Funds filled the gap: Private credit managers offered speed and flexible structures.
- Search for yield: With a decade of low rates, private credit out-yielded public bonds.
Today, the private credit market size has surpassed $2T and is projected to reach $3T–$5T by 2030, driven by pensions, sovereign wealth funds, and insurers.
Major Segments of Private Credit
- Direct Lending — Senior secured loans to middle-market companies, often PE-backed.
- Mezzanine Debt — Subordinated, higher-yield financing with occasional equity participation.
- Distressed & Special Situations — Capital for restructurings and turnarounds.
- Asset-Based Lending (ABL) — Credit secured by receivables, real estate, or inventory.
- CLOs Explained — Structured vehicles that pool leveraged loans into risk/return tranches.
- Non-Traditional Credit Markets — Litigation finance, royalties, infrastructure debt, carbon-linked credit.
Coming soon: CLOs Explained Simply • Direct Lending Guide • BDC Basics • Mezzanine Debt
Why Investors Allocate to Private Credit
- Yield premium vs. public fixed income
- Diversification with lower correlation to equities
- Customization tailored to borrower and sponsor needs
- Control via covenants and monitoring rights
Key Players in Private Credit
- Mega-Managers: Blackstone, Apollo, Ares, KKR
- Banks & Shadow Lenders: increasingly via partnerships and club deals
- Specialized Funds: boutique platforms in mezzanine, distressed, and niches
- Institutional LPs: pensions, sovereign funds, insurers
Risks in Private Credit
- Illiquidity — multi-year lockups and thin secondaries
- Default risk — especially in cyclical downturns
- Complex structures — require deep diligence and active monitoring
- Valuation opacity — less transparency than public credit
Unlike private equity, private credit investors don’t own equity upside—returns rely on disciplined underwriting and monitoring.
Private Credit in 2025: Snapshot
- Market size: $2T+ and growing
- Strongest inflows: pensions & insurers seeking stable yield
- CLOs remain the dominant structured vehicle
- Non-traditional credit markets (royalties, litigation finance) are the next frontier
The Future of Private Credit
- AI in private credit — accelerating underwriting, monitoring, and compliance
- Global expansion — Europe, Asia, and EM gaining share
- Retail access — opening to HNW and, gradually, broader investor bases
- Alternative asset classes — royalties, carbon finance, and litigation lending expand the map
Conclusion
Private credit is no longer a niche—it’s a pillar of modern finance. For investors, the opportunity lies in selecting managers with disciplined private credit strategies that balance yield, structure, and risk. For borrowers, it offers speed, flexibility, and access to capital that banks can’t match.
Up next: deeper dives on Direct Lending, CLOs Explained, BDCs, and how AI is reshaping private credit.