Beyond the Private Credit Boom

From Primer to Practice

In a previous Bullish Beginnings edition, The Rise of Private Credit, we provided an overview of the rapidly expanding private credit industry, outlining its eyewatering growth and associated risks. Now, we are going to go even further down the rabbit hole, exploring the intricacies of what makes this industry such a hot topic on Wall Street.

Join us as we lift the hood of private credit and move beyond the headlines to discuss global expansion, fund structures, investors, technology, sustainability, and much more in this new edition of Bullish Beginnings.

The Rise of Private Credit: A New Power in Global Finance

How Private Credit Holds Up in Stress

In our previously stated blog, we outlined the apparent risks in the industry, but let’s examine how private credit lenders have coped throughout market turmoil, and the outlook for investors given the current market.

A recent valuation research corporation article by John Czapla investigates the industry’s capability to endure market and economic pressures. The article demonstrates that the private credit market has withstood significant economic pressures, including the sharp increases in interest rate targets the FED implemented in March 2022, without experiencing a widespread wave of defaults. We may have seen defaults and credit losses if the FED did not lower rates in the trailing month of 2024 in an effort to stimulate the stagnating economy, but alas, we will never know for certain.

The article suggests that the resilience of the market may be attributed to the power held by the borrowers. In private credit deals, borrowers can restructure deals in tandem with interest rates, and the unique ability of them being able to absorb more interest costs.

I think it still begs the question, which will surely be answered in due course: is private credit resilient, or has it not had a true systemic shock yet?

Global Expansion Beyond the US & Europe

PwC’s statement piece regarding the future of private credit was a remarkable commentary about global markets and how private credit is reshaping the debt value chain. It made a keen prediction about its likelihood of not just financing middle market lending, but reaching its expansive ambitions to loan out to everything it can get its hands on and financing everything. They believe it will be more disruptive to the debt market than junk bonds and loan syndicates.

Developing markets in Latin America, Asia, and Africa still lack private credit opportunities due to legal infringements and FX volatility, but if private credit can innovate to get around these hurdles like they have been doing for the last 30 years, then there is no stopping these firms from achieving a much bigger slice of the debt financing pie.

Fund Structure

In Moody’s summer assessment of the systematic risks associated with private credit, they mentioned in their introduction:

“The growing interconnectedness between private credit funds and other financial institutions can amplify financial instability, as evidenced by higher correlation and network connectivity during stress”

So let’s analyse why they make this claim, the inner workings of these illustrious private credit firms.

Private credit investments are largely structured as closed-end funds, often as limited partnerships or LLCs, like private equity vehicles. General partners manage these funds on behalf of limited partners, typically institutional investors, who commit capital for a set term. This attracts patient investors, including pension funds, insurers, endowments, and sovereign wealth funds.

The use of leverage varies among funds, reflecting investors’ risk tolerances and return objectives across the industry. Some direct lending funds maintain conservative profiles with little or no fund-level borrowing. Other funds utilise credit facilities, which can include subscription lines, NAV lending, and hybrid structures from banks, to increase returns.

In addition to this, private credit managers finance their loan portfolios through private collateralised loan obligation (CLO) structures. This can provide managers with an additional funding source, often cheaper, and allow them to scale lending without requiring new equity capital. However, this introduces another layer of leverage and structural complexity, further complicating risk assessment across the private credit market.

ESG and the Sustainability Question

Private credit has been slower than public markets to jump on the ESG train, but that’s changing fast. Lenders are realising that poor governance, dodgy labour practices, or climate risks can all hit a borrower’s ability to pay back, and when you’re in the credit business, that’s all that matters.

Here’s the challenge: most mid-sized private companies (where private credit operates) don’t show up in ESG databases. That means managers can’t just rely on third-party scores; they have to roll up their sleeves and dig in, deal by deal. Increasingly, firms are teaming up with independent ESG specialists to run asset-level checks. The difference is huge: industry checklists might tell you “software companies have data risks,” but only a deep dive will flag if a borrower has already had a breach, or if their compliance systems are paper-thin.

So far, ESG in private credit has mostly been about downside protection, spotting red flags like corruption risk, unsafe workplaces, or climate exposure before they blow up. But the next wave is about value creation: finding companies that benefit from being cleaner, fairer, or more efficient. Investors are already rewarding this, with private credit now making up more than a third of global impact investing assets.

Regulation: What’s Coming Next?

Private credit has thrived in the shadows, but regulators are starting to take notice. In the US, UK, and EU, watchdogs are circling — from tougher disclosure rules to closer scrutiny on leverage and retail access. The EU’s SFDR already demands more transparency, and the SEC is signalling it won’t let private credit grow unchecked. More oversight could make the market safer, but it also risks slowing the boom. Either way, the days of flying under the radar are numbered.

Macro & Geopolitics: The X-Factors

Sticky inflation, higher-for-longer rates, and a strong dollar squeeze. Add in geopolitical shocks, wars, trade disputes, energy crises, and repayment risk rises fast. A downturn that triggers defaults could test just how resilient this multi-trillion-dollar market really is. For now, private credit is booming, but it’s running straight into a world of macro uncertainty.

Conclusion

Hopefully, you now better understand how private credit has moved from niche to mainstream. The sector’s future hinges not just on yield, but on transparency, governance, and adaptability. Together with Part I, readers now have both the “what” and the “so what” — the story and the substance.