The debt most Americans (and the rest of the world) have dealt with—from credit cards to mortgages—is typically transparent: there are bills payable, visible balances, and credit scores that measure a borrower's trustworthiness.
Private credit, i.e. loans granted to companies from the capital of private investors accumulated in fundsis much less regulated and much more opaque. The exact terms of loans, their pricing and ratings may remain in the shadow and beyond the reach of regulators.
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Small and medium-sized businesses use these loans to expand, from manufacturing plants purchasing new equipment to dental offices planning expansion. At the same time, private credit has become the hottest business for leading brands in the financial world, such as Blackstone and Apollo.
Supporters — including Apollo CEO Marc Rowan and Blue Owl co-president Marc Lipschultz — say access to financing with less onerous requirements helps U.S. companies grow. Critics, including UBS chairman Colm Kelleher and the head of the International Monetary Fund, Kristalina Georgieva, believe that the explosion of less transparent debt is unsustainable, and the questionable terms of many loans could lead to economic problems.
This dispute has reached a boiling point as private credit prepares for an onslaught from retail investors. Already around USD 80 billion. retail capital is tied up in private credit, but Deloitte predicts that will grow to $2.4 trillion by the beginning of the next decade, thanks to regulatory changes that allow more ordinary Americans to purchase these assets.
Depending on who you ask, including private credit in Americans' retirement savings is either the key to financial freedom or a recipe for economic disaster.
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Basics of private credit
In the simplest terms, private credit involves collecting money from investors and lending it to companies. To make this possible, an investment firm creates a fund and approaches entities with capital – pension funds, ultra-wealthy individuals, insurance companies, sovereign wealth funds, foundations – telling them what kind of loans it wants to make.
Once enough investors agree to put up money, the fund looks for companies that need financing. It can be used to hire employees, build a new factory or take over a competitor. In an ideal scenario, the loan allows the company to increase its scale of operations and revenues, and then repay the principal with interest, which generates a profit for the private credit fund and its investors.
Companies value such loans because they are more flexible than bank loans, they can be obtained much faster and better tailored to individual needs. In turn, private credit companies and their investors prefer them because they offer higher returns than public bonds – interest rates for borrowers are usually 1.5-3 percentage points higher. higher.
The modern private credit market can be traced back to Michael Milken and the junk bond boom of the 1980s, but it really took off after the 2008 financial crisis. New regulations like the Dodd-Frank Act prompted banks to withdraw from riskier lending, allowing nonbank lenders—including private credit funds—to fill the gap.
The assumption was that only specialized institutional investors or very wealthy individuals would bear the risk. According to McKinsey, the industry grew tenfold between 2008 and 2023, and Morgan Stanley analysts estimate its value increased from $2 trillion to in 2020 to PLN 3 trillion at the beginning of 2025.
As private finance expands, the need for capital increases — and the number of billionaires and oil-rich countries is limited. Kevin Desai of PwC said that competition for investors' money is “the greatest in history”. The next step is to open funds to wealth advisors and, in the long run, to anyone who has a retirement account in the US.
Why does a relatively niche and risky industry want to finance its growth with money from the general public? According to lenders, it is almost a missionary calling: access to above-average returns is intended to enrich the masses and help solve the problem of insufficient retirement savings. Rowan says countries such as Australia, Israel and Mexico that allow private assets in pension systems have achieved “40-50% better results.”
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Invest at your own risk
However, the matter is not that simple. Critics point out that the industry's motivations are not solely altruistic, and the lack of transparency, high fees and difficulties in reliably pricing risk can hit ordinary savers. There are also concerns that the worst-performing assets could go to retail investors while institutions take profits.
The greatest concern is what will happen in the event of an economic slowdown and a wave of insolvencies. While supporters say redemption restrictions reduce the risk of market panics, critics warn that bank ties and additional leverage could magnify the impact of any problems.
As market observers conclude, the only way to reduce these threats is greater transparency, better data and stronger investor protection. Meanwhile, private credit continues to grow — and soon your retirement savings could become part of the puzzle, too. Will it be a stable source of long-term profits or a risky bet that will collapse in the next crisis? This remains an open question.
Note: the information contained in the text is for informational purposes only and does not constitute an investment recommendation, information recommending or suggesting an investment strategy within the meaning of applicable regulations, or any other form of advice regarding the purchase or sale of financial products.
The above text is a translation from American edition of Business Insider
