Private credit's explosive growth

Private credit assets have surged from under $200 billion before 2008 to $2.5 trillion today, now exceeding the US high-yield bond market. The sector could reach $4.5 trillion by 2030.

The word private sells exclusivity

Adding 'private' to an asset class conveys higher returns and exclusivity, like a luxury brand. Minimum investments can reach $1 million, creating perception of superior access.

Post-crisis rules fueled the boom

After 2008, banking regulations forced banks to hold more equity and penalised corporate lending. Quantitative easing suppressed bond yields, pushing pension funds and insurers toward private credit.

The illiquidity premium promise

Institutions sought higher returns by locking capital in illiquid assets with no secondary market, betting on an 'illiquidity premium' to compensate for lack of access.

BDCs reintroduced the old problem

To expand funding, the US private credit industry created business development companies offering quarterly redemptions capped at 5% of assets. This recreated the liquidity mismatch private credit claimed to solve.

Redemption pressure is mounting

Blackstone's $82 billion BCRED fund faced 10% redemption requests in recent quarters. Blue Owl's OTIC saw requests above 38%, revealing investor panic when they want their money back.

The Blue Owl merger revolt

Blue Owl tried merging an unlisted BDC into a publicly traded one trading at 20% discount to net asset value. Investors revolted, refusing to accept an immediate mark-down on their holdings.

Default rates are wildly disputed

Fitch reports 6.3% default rates, but Houlihan Lokey says under 1%, while Pimco claims 19%. The opacity makes it impossible to assess true credit risk in the sector.

Private equity and credit are entangled

Private equity firms bought life insurers to access 'permanent capital' from policyholder premiums. These insurers then funnelled money into private credit vehicles that lent back to affiliated PE deals.

Mark Walter's sports team deals

Mark Walter used Delaware Life policyholder premiums to buy the Los Angeles Dodgers and Lakers. Federal prosecutors are investigating how tens of billions in private credit portfolios funded trophy assets.

Delaware Life's hidden affiliates

Delaware Life restated disclosures to reveal $17 billion in affiliated investments, up from $1.4 billion reported. This represents roughly 40% of invested assets tied to other Walter entities.

High fees drive the industry

The financial industry charges 1% or higher fees on private investments versus lower fees on public assets. This fee structure, not performance, motivates the push into private credit.

“A critical goal of the financial industry in 2026 is to invest more of people's retirement savings in 'private assets', because it is still possible to charge fees on the order of 1% (or higher!)”

Equities beat everything over decades

Historical data shows public equities deliver superior returns for long-term investors. A 1919 pound invested in equities grew to 28 million pounds by 1957, versus 3.7 million in gilts.

Shareholders capture growth, lenders don't

Equity investors participate in compound economic growth through dividends. Private credit lenders face asymmetric risk: they absorb full downside losses without any upside participation.

Global stocks have tripled in a decade

The MSCI World index has increased more than seven-fold over 20 years in sterling terms with dividends reinvested, and trebled in the last ten years. Yet sophisticated investors chose illiquid private credit.

UK insurers face unfair selling pressure

UK life assurers like Legal & General, Aviva and Standard Life have been sold off, pushing dividend yields to 6-9%. Much anxiety stems from conflating the regulated UK framework with the unregulated US.

UK insurers can weather a crisis

Stress tests show UK insurers hold sufficient capital to absorb a repeat of 2008 with 11% default rates on illiquid holdings. Private credit represents only 9% of UK life assurer portfolios.

UK exposure is conservative

UK life assurers focus on long-dated, secured infrastructure and social housing rather than speculative leveraged buyout loans. This conservative approach limits downside risk.

A buying opportunity may exist

For risk-tolerant investors, the sell-off in UK life assurers could represent a good entry point. Market fears about private credit may be overblown relative to the sector's actual exposure and regulation.