How Private Credit Emerged as a Leading Investment Trend on Wall Street

In 2023, private credit has rapidly gained popularity as a sought-after investment category on Wall Street, with projections from alternative data platform Preqin anticipating its growth to $2.7 trillion by 2027.

Key players such as Apollo Global and Ares Management have significantly expanded this market, witnessing a substantial increase from its $250 billion valuation in 2010.

This shift can be attributed, in part, to the aftermath of the 2008 Great Financial Crisis, where banks withdrew from the lending market due to new regulations. Additionally, the Federal Reserve’s prolonged policy of maintaining interest rates at near-zero levels over a decade played a pivotal role.

Damien Dwin, founder of Lafayette Capital, explained, “We experienced a banking crisis in this country, and the Fed drove interest rates to zero. This has created conditions conducive to the flourishing of alternative investments, thanks to the additional yield they can provide.”

Despite its rising prominence, private credit remains a complex and less accessible investment option. Notably, private credit funds are not available on platforms like Robinhood.

Dwin elaborated, “These funds derive their capital from sources such as pension funds, endowments and foundations, insurance companies, retail investors, and sovereign wealth investors. Essentially, they involve loans from entities other than traditional deposits, usually directed towards privately held businesses.”

For a more in-depth understanding of what private credit entails, its impact on debt markets, and the associated risks, watch the informative video below.