Dealmakers from Carlyle to KKR are leaning into the $7.4 billion private-credit market – but higher demand for the opaque space has only made it riskier

0
48

Office building on Wall Street.

Private-credit funds raised $143 billion last year and are keen to put that money to work. Firms such as Carlyle and KKR are bolstering their private-debt offerings as M&A opportunities rise. Borrowers can arrange private loans faster, but this comes at a greater cost to companies. See more stories on Insider’s business page.

Private-credit funds have garnered a few monikers over time. Direct lenders, club dealers, nonbank lenders, and even shadow bankers.

As the latter suggests, it’s an opaque part of the debt markets that’s grown remarkably as money-center banks such as Citi and Bank of America remain hamstrung by regulatory requirements after the 2008 financial crisis.

Out of the ashes, private credit has soared, often stepping in where big banks cannot. Companies such as Airbnb and the publisher Gannett have turned to private sources for liquidity needs as banks have tightened their purse strings.

But going private, over a syndicated loan or high-yield bond, is not without risk. While these lenders can complete a deal quicker than a bond or leveraged-loan sale, companies are likely to pay up for that expediency. Direct lenders, after all, are taking a chance on something a bank may not, and they want to be compensated for that.

With so much liquidity in the system, investors – from private-equity giants to boutique credit shops – are doubling down on private-credit opportunities as they search for greater returns. Earlier this month, Apollo raised $1.8 billion for its Origination Partnership direct-lending fund, while KKR hired two new managing directors to its private-credit team last month on the back of growth in private lending.

Private-credit funds have raised $32.7 billion so far this year, on top of $143.3 billion last year, and $141.8 billion in 2019, the research firm Preqin reported. Total assets under management in private markets grew 5.1% to $7.4 trillion in 2020, McKinsey said in a report published this month.

“In 2008, a lot of people didn’t know what private debt