Understanding Private Credit

Published on
June 20, 2024
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Demand for private credit—which refers to lending to companies by institutions other than banks—has grown significantly in recent years. Unlike most bank loans, private credit solutions can be tailored to meet borrowers’ needs in terms of size, type or timing of transactions. Similar to bank loans, however, the majority of private credit lending is in the form of floating-rate investments that change as rates change, providing real-time interest rate mitigation compared to investments like fixed-rate bonds.

In addition, amid recession fears and tighter bank lending, private credit offers borrowers pricing certainty and speed, which has helped fuel the market’s growth in recent years. The size of the private credit market at the start of 2024 was approximately $1.5 trillion, compared to approximately $1 trillion in 2020, and is estimated to grow to $2.8 trillion by 2028.1

Ashwin Krishnan, Co-Head of North America Private Credit at Morgan Stanley Investment Management, explains the different types of private credit, the growing appetite for the asset class and how private credit has behaved in prior market cycles.

Q: What is private credit and what are the different types?

Krishnan: Private credit is a form of lending outside of the traditional banking system, in which lenders work directly with borrowers to negotiate and originate privately held loans that are not traded in public markets. Following the Global Financial Crisis (GFC) in 2008, and the associated capital rules for banks, private credit has filled a lending void.

Read the full post from Morgan Stanley here.

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