What's Actually Going On With Private Credit

Private credit has evolved from a niche financing tool into a massive, systemic force within the global bond market, filling the void left by banks following the 2008 financial crisis. John Sheehan and Craig Manchuck of Osterweis explain that this growth stems from a combination of investor demand for yield and a supply-side vacuum created by stricter bank capital requirements. The current landscape faces significant risks, including aggressive underwriting, excessive leverage, and illiquidity mismatches in retail-oriented structures. The shift toward floating-rate debt in a higher interest rate environment places immense strain on corporate balance sheets, potentially leading to higher default rates. Unlike private equity, which relies on capital calls, many private credit funds take money upfront, creating pressure to deploy capital rapidly and often compromising credit quality in the process.