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In this article
Private debt, or private credit, is the provision of debt finance to companies from funds, rather than banks, bank-led syndicates, or public markets. In established markets, such as the US and Europe, private debt is often used to finance buyouts, though it is also used as expansion capital or to finance acquisitions.
Private debt expanded rapidly after the Global Financial Crisis (GFC), when banks pulled back from leveraged lending and concentrated their corporate operations on larger clients, creating a gap in the market that private debt funds filled.
Private debt funds pursue a range of strategies, for example, direct lending, venture debt, or special situations, as well as by the type of debt provided, such as senior, junior, or mezzanine. Lending private debt can be to both listed or unlisted companies, as well to real assets such as infrastructure and real estate.
Assets under management in private debt has now surpassed $812bn, with the number of active investors in the industry currently more than 4,000.
Sources of capital for private debt funds include:
Private debt is widely regarded as a low-risk investment compared to other alternative asset classes, and a viable alternative to fixed income investing. Investors commonly invest in private debt through commitments to unlisted private debt funds, which offer attractive risk-adjusted returns, particularly in a low interest rate environment.
A conservatively-managed private debt portfolio presents the following attractive characteristics for an institutional investor: