Recently, 'Private Credit' has emerged as a financial trend on Wall Street. Private credit, which manages funds in a differentiated manner from traditional bank loans, private equity, and hedge funds, has rapidly grown in recent years, attracting massive funds from ultra-wealthy individuals and large institutional investors.
According to Bloomberg, the private credit market size currently stands at $1.6 trillion (about 229.3 trillion won), growing more than threefold in 10 years. In 2000, private credit accounted for 4% of the overall corporate bond market, but by 2022, its share surged to 20%. The flow of capital on Wall Street is shifting from banks and traditional financial institutions to private credit.
Private credit is a method of directly lending to corporations using funds from ultra-wealthy individuals and institutional investors rather than banks. Unlike traditional private equity, which takes ownership stakes in corporations, or hedge funds, which engage in short-term speculative transactions, private credit profits by purchasing liabilities of corporations or providing new loans. Its structure is closer to bond investment rather than equity.
In the past, private credit was a niche industry on the fringes of the financial market. However, as institutional investors seek higher revenue and traditional bank lending contracted following the 2008 global financial crisis, private credit has become the fastest-growing sector on Wall Street. Private credit now provides relatively quick and flexible lending, filling the gaps in the existing financial system.
One reason for the rapid growth of the private credit market is its high yield. Following the rise in global interest rates, institutional investors have found it increasingly difficult to achieve target returns solely through traditional bond investments, as private credit has emerged as an alternative investment that offers higher revenue than traditional bonds while maintaining lower volatility than equities.
Major institutional investors such as pension funds and endowment funds, as well as ultra-wealthy individuals, are actively investing in private credit. Private credit funds often have minimum investment amounts reaching millions of dollars, making it difficult for typical individual investors to access, but offering exclusive investment opportunities for the ultra-wealthy. Additionally, they can secure liquidity more quickly than bank loans, making it an attractive option for investors seeking high revenue in the short term.
As the private credit market has grown, a new financial power has emerged. Some of the world's largest investment firms, including BlackRock, have rapidly acquired private credit firms, leading to the rising of new billionaires among those successful in this market. According to the Bloomberg Billionaires Index, the total assets of 18 billionaires benefiting from the private credit boom amount to $61 billion (about 87.4 trillion won). Among them, the best-known figure in the financial industry is Tony Ressler, co-founder of Ares Management, often regarded as a 'pioneer' in private credit. Bloomberg noted, 'Twenty years ago, hedge fund managers held financial power on Wall Street; now, those dealing with private credit are emerging as the new power brokers.'
However, there are warnings that the rapid growth of private credit could pose new risks to the financial system. Much of the private credit lending is conducted without collateral, and since the market operates privately, it often falls outside the regulatory scope of financial authorities. Unlike traditional bank loans, the private credit market has less disclosure obligation, making it unclear how much actual liability corporations hold. In the event of a recession leading to a spike in bad loans, there's a possibility that it could become a 'ticking time bomb' for the financial system, similar to subprime mortgages during the 2008 financial crisis.