What Private Credit Is, Why It Grew and Why It Matters

Over the last decade, a significant part of corporate lending has shifted from traditional banks to investors outside the banking system. Private credit has grown into a central part of how companies access financing, yet it remains poorly understood outside financial circles. Its rise reflects deeper changes in global finance and raises important questions about transparency, risk and the future of credit markets.

What Is Private Credit?

Private credit refers to debt extended to companies outside the regulated banking system. Instead of borrowing from a bank or issuing bonds that trade on public markets, firms raise loans directly from private lenders. These lenders typically include institutional investors such as pension funds and insurance companies, plus specialist asset managers that pool capital into private credit vehicles. These loans are not traded daily on exchanges and disclosure is limited compared with public markets, making them harder to value and less liquid. This form of private lending sits at the heart of today’s private credit boom.

Why Has It Grown So Much?

The origins of private credit’s expansion trace back to the aftermath of the global financial crisis of 2008. Stricter bank regulation and higher capital requirements made traditional lenders more cautious about extending credit to smaller and riskier borrowers. These changes created an opening for other providers of debt to step in. Private credit funds have since expanded to fill the financing gap left by banks.

Assets under management in private credit have soared. Estimates suggest that private credit stood at roughly $3 trillion in 2025, up from about $2 trillion in 2020, with projections that it could grow to around $5 trillion by 2029 if current trends continue.

Institutional investors have been attracted to private credit for a number of reasons. Private credit typically offers higher yields than traditional fixed income because investors demand a premium for taking on higher risk and lower liquidity. Many private credit loans are also structured with floating rates, meaning the interest adjusts with benchmark rates and can benefit investors when interest rates rise.

Another factor in private credit’s rise has been the backing of large asset managers and institutional capital. Firms such as Apollo Global Management, Ares Management, Blackstone and others have built substantial credit platforms that channel pension funds, insurance capital and sovereign wealth into direct lending vehicles. These firms have become significant players in the non-bank lending market, and their involvement has helped institutionalise private credit at scale.

Banks themselves have also played an indirect role in the boom. In some cases, banks originate loans and then sell them to private credit funds, or extend credit lines to private lenders that amplify their ability to make loans. This interconnection has further embedded private credit into the broader financial ecosystem.

Why Does Private Credit Matter Today?

Private credit now matters because it is no longer a niche alternative investment. It is a major source of corporate finance, especially for medium-sized companies that may not easily tap public bond markets or bank loans. But its growth has also brought the first signs of stress that reflect the specific structural features of private credit.

In late 2025, investors withdrew more than $7 billion from some of the largest private credit funds run by firms such as Apollo Global Management, Ares Management, Blackstone and Blue Owl, following a series of high-profile bankruptcies including Tricolor Auto and First Brands. While this amount was small compared to the total size of the private credit market, the withdrawals were unusual for funds that are designed to hold long-term loans rather than offer easy access to cash. As a result, these firms received redemption requests amounting to 5% of fund portfolios with predictions for this figure to rise further, signalling growing concern about the health of borrowers as higher interest rates made debt harder to service. The episode mattered less because of the dollar figure itself and more because it challenged the assumption that investor capital in private credit would remain stable during periods of economic stress.

Those withdrawals are notable because private credit funds are typically illiquid by design. A rush to monetise positions in vehicles that do not trade on public markets or that have quarterly redemption windows can create stress not just for individual funds but for the overall perception of the entire asset class.

Looking Ahead

The rise of private credit reflects deeper shifts in the global financial system, particularly the retreat of banks from riskier forms of corporate lending and the growing role of asset managers in credit creation. It has become a vital channel for corporate financing outside the traditional banking system. But its structure brings trade-offs in liquidity, transparency and risk sharing that remain poorly understood beyond specialist investors. As private credit continues to expand beyond the margins of the financial system, the central question is no longer whether it can replace banks, but are markets and regulators prepared for the risks that come with letting so much credit creation operate outside the public eye?