Private credit refers to lending by non-bank financial institutions—chiefly private-equity firms—through loans that are rarely traded, in contrast to the "public" bond and loan markets where debt changes hands frequently. The industry has grown rapidly since the 2008 financial crisis, partly because post-crisis regulation hemmed in banks. The five biggest private-credit managers have amassed $1.9trn of debt assets. Apollo, Blackstone, Carlyle and KKR together manage $3.4trn of assets, compared with $800bn a decade ago. Roughly $1.5trn of private loans are outstanding, around a third of which sit in funds open to individual investors. They view all of the $40trn borrowed by American households and businesses as their addressable market, particularly the $13trn of loans sitting on bank balance-sheets. McKinsey puts the addressable market at $34trn; Apollo puts it at $40trn.
Private credit is the latest chapter in a long retreat of banks from direct lending. In 1974 nearly 55% of private lending in America was held on banks' balance-sheets as direct loans; by the beginning of this century that share had fallen below 35%, where it remains. Even as banks' assets have grown from 60% of GDP in 1960 to 94% today, their contribution to lending has stayed flat at around half; net bank lending to households has fallen by about a quarter over the past 50 years, according to researchers at the New York Fed. Technological developments—from securitisation software to FICO scores—and the growth of corporate-bond markets, mortgage-backed securities and collateralised loan obligations all drew credit away from bank balance-sheets long before post-crisis regulation accelerated the shift.
Private credit's roots lie in the junk-bond innovation of Drexel Burnham Lambert in the 1980s—the first wave of innovation in borrowing by highly indebted firms. The second wave was leveraged loans, made by investment banks and then securitised as collateralised loan obligations. Private credit represents the third wave: private-equity firms lending directly, often to companies owned by other private-equity firms. These funds thrived especially after 2022, when rising interest rates left banks holding unwanted debt; private-credit funds now finance the majority of new buy-out deals.
Business-development companies (BDCs) are funds that invest in private credit and are generally open to individual investors. Their assets quadrupled to $440bn between 2019 and 2024. Blackstone's BCRED, the biggest, manages $70bn of loans; were it a bank, it would be America's 37th-largest. For every dollar a BDC raises from investors, it typically borrows one more from banks.
Life insurance provides another source. Private-markets firms argue that life-insurance policyholders, who incur penalties for early withdrawal, supply comparatively stable funding suited to less liquid assets. Apollo started Athene, its insurance arm, in 2009; Athene now sells more annuities than any other American insurer. KKR completed its acquisition of Global Atlantic; Blackstone manages $237bn of insurance assets through minority stakes in insurers. Insurers' borrowing from Federal Home Loan Banks has reached a record $160bn.
Retail ETFs and tokenisation are newer channels. Apollo and State Street launched an exchange-traded fund in February 2025 containing private loans. Apollo has also started tokenising a private-credit fund on the blockchain. KKR has launched products mixing public and private debt through a partnership with Capital Group. Blackstone is working on something similar with Vanguard and Wellington Management.
Banks are striking partnerships with asset managers, shifting debt from heavily regulated balance-sheets to funds. Eight such partnerships were announced between October 2024 and March 2025; there were four in all of 2023. Citigroup made the biggest deal so far, agreeing to arrange $25bn of corporate loans for Apollo. Barclays offloaded credit-card debt to Blackstone. Apollo originated $220bn across its businesses in 2024; nearly half came from a stable of 16 lending firms it owns, including a former division of GE Capital and Atlas, the securitisation business of the former Credit Suisse.
In recent years bank loans to non-bank financial institutions—including specialised lenders and private-credit firms—have ballooned. According to research by the IMF, banks accounting for more than half the sector's assets have exposure to non-bank lenders which is greater than their buffers against unexpected losses.
As the value of offices slumped after the covid-19 pandemic and interest-rate rises, loan-to-value ratios on mortgages attached to them rose, leaving banks holding riskier loans. As banks have pared back lending, private-credit firms have stepped in. Moody's expects about $1trn-worth of commercial-property mortgages in Europe and America to shift to new private creditors over the next three to five years. Life insurers and private-credit funds are especially likely to snap up the mortgages banks no longer want.
By late 2025, credit spreads had fallen to their lowest level since 2007, with junk bonds offering just 2.8 percentage points above Treasuries—vanishingly little compensation for risk. Some 11% of private-market firms were receiving payments-in-kind rather than cash interest, up from 7% in 2021. Auto-debt delinquencies hit five-year highs, and lorry sales fell to their lowest in five years, suggesting economic weakness among poorer consumers. BDCs fell out of favour with investors. Two high-profile bankruptcies illustrated the vulnerabilities: Tricolor Holdings, a subprime auto lender, filed for bankruptcy in September 2025; First Brands, a small Ohio maker of windscreen-wipers and spark plugs, revealed a $10bn liability web in which receivables had been double-pledged—outright fraud. Its CEO resigned on October 13th and the Department of Justice opened an investigation. The blow-up rippled across the financial system: Jefferies's shares fell by a fifth, UBS and the Japanese agricultural bank Norinchukin also took losses, and the hedge fund Millennium was caught in the fallout.
Regulators and some bankers see private credit as a form of regulatory arbitrage bound to blow up when defaults rise. Even before Donald Trump's tariffs in April 2025, almost half of private-credit borrowers had negative free operating cashflows, up from a quarter at the end of 2021. Assets change hands less frequently than in public markets, which can mask stress: Pluralsight, a tech company bought by Vista, had its private loans marked near par before their value was slashed in a restructuring. Concentration in technology and business-services sectors is a particular concern.
The failure of a large life insurer holding private-credit assets would be severe; the simultaneous failure of a large asset manager would compound the effect. The lack of transparency in private markets means regulators and investors might not see a problem coming until the very last moment.
Business-development companies come in two flavours. Traded BDCs allow investors to buy and sell shares on the stockmarket. Private BDCs grow by issuing new shares through wealth managers; investors can sell them back once a quarter at net asset value, but managers may limit redemptions to 5% of shares per quarter. BDCs were created by Congress in 1980 to expand lending to small businesses but grew huge by financing private-equity buy-outs. In aggregate BDC assets ballooned from $230bn at end-2021 to nearly $600bn by early 2026.
By spring 2026 investors had turned against both types. A combination of lower interest rates, excess capital chasing deals and rising concern that AI would undermine software borrowers—the largest sector in BDC portfolios—sent public BDC share prices plunging. Funds with assets of more than $3bn traded at a median discount-to-NAV of 25%, up from 16% at the start of the year and near zero a year earlier. FS KKR Capital Corp could be bought for less than half its NAV.
The spiral of redemptions in private BDCs was likely to continue for as long as investors could redeem shares and buy equivalent exposure at a discount in the public market. Ares, Apollo and BlackRock each limited first-quarter redemptions to 5% despite requests of 11.6%, 11.2% and 9.3% respectively. Blackstone's largest single BDC, launched in 2021 and managing $83bn, redeemed 7.9% in March, partly by injecting $150m from staff. Oaktree allowed 8.5% of shareholders to leave one fund, paying some with cash from Brookfield. Blue Owl, focused on tech firms and grown from $50bn to more than $300bn since 2021, suspended redemptions at one fund and on April 2nd capped withdrawals at 5% for two others after requests surged to 40.7% and 21.9%. Cliffwater, a lesser-known manager, reportedly faced requests of 14%; it had grown from less than $20bn in 2023 to $42bn, with around 40% of its holdings in other investment vehicles.
According to S&P, the median software company held by private-credit funds had borrowed around eight times annual earnings. Half had negative cashflows.
Private credit and life insurance have transformed each other. All the large private-markets houses either own insurers or have agreements to manage big swathes of their assets. Collateralised loan obligations, which pool private and bank loans, represented 4% of life-insurer assets at end-2024, according to Moody's, but as much as 18% at one firm, Security Benefit. Two newer mechanisms—rated-note feeders and collateralised-fund obligations—saw new issuance jump to more than $17bn and $26bn respectively in 2025, according to KBRA. Assets reinsured in the Cayman Islands, where oversight is notoriously poor, rose from $23bn in 2020 to $101bn. In 2024 the upstart rating agency Egan-Jones reportedly rated more than 3,000 assets with just 20 analysts.
By spring 2026 more than a quarter of the market value of the big private-equity houses had been wiped out. Their excessive exposure to the software industry and the broader crisis in BDCs were compounded by the shock of the Iran war. The humbling of the kings of private markets on the public markets was ironic: mistakes grew more likely now that the firms were asset-gathering giants whose valuations depended on the fees they generated rather than their investing prowess.
Over the past decade loans from banks to non-bank financial institutions have grown three times as much as total bank assets. The Federal Reserve estimated that at end-2024 banks had committed to lend $87bn to BDCs. JPMorgan Chase and Wells Fargo are among the busiest lenders, as are smaller American banks and large European ones. EverBank, outside the 50 biggest American banks, holds the 17th-biggest book of loans to non-bank financial institutions; it is itself owned by private-equity investors. Barclays and Deutsche Bank have each said that a little more than 5% of their loans are to private-credit funds.
During the 2010s buy-out funds spent one in every three dollars on technology firms, attracted by the "recurring" subscription revenue of enterprise software. More than $500bn of borrowing tied to software firms is estimated to be lurking in America's credit markets. Perhaps 16% of the leveraged-loan market is tied to software deals, much of it housed in collateralised-loan obligations. The largest bets on software debt are found in BDCs: Blackstone's BCRED has 26% of its loans in software, and the largest listed BDC, run by Ares, has 24%. An unlisted BDC run by Blue Owl has at least 29% of its portfolio in software debt. The 25 largest private-equity buy-outs of traded software firms between 2019 and 2022 were struck at a median of nine times the target firm's revenue, far above where public-market valuations have since settled.
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