Key Takeaways
- • Private credit, which the Roosevelt Institute describes as a shadow banking activity largely outside bank-style regulation, has grown to at least $1.3 trillion in the US, having roughly tripled since 2015 according to estimates cited in the piece.
- • Some large borrowers of private credit firms have recently gone bankrupt, and some investors have begun withdrawing capital, raising concerns about spillover into the broader financial system.
- • Institutional investors such as pension funds, endowments and foundations dominate private credit allocations, with Harvard, CalPERS, Indiana PERS, Ohio School Employees Retirement System and University of California all cited as investors.
- • The Trump administration's effort to permit alternative investments, including private credit, in 401(k) plans could expand retail exposure to a market with limited disclosure.
- • Former Treasury assistant secretary Graham Steele argues regulators such as the SEC and Treasury have been 'asleep at the switch' during the market's growth and that policymakers should prioritize protecting workers and pension retirees in any emergency relief.
Summary
A Roosevelt Institute discussion featuring President and CEO Elizabeth Wilkins and Senior Fellow Graham Steele, former assistant secretary for financial institutions at the US Department of the Treasury, examines the rapid growth of private credit and the risks it may pose. The piece describes private credit firms as non-bank lenders that make loans less regulated than bank loans and less transparent than bonds, operating in what the article terms shadow banking, activity that takes in investor money and lends it out outside the regulatory perimeter that governs banks.
According to the article, private credit has been attractive to investors because its loans carry higher interest rates, reflecting looser underwriting such as fewer collateral requirements. Institutional investors dominate the asset class, and the piece cites Harvard's $300 million commitment announced in 2018 and at least $100 million investments in 2022 by CalPERS, Indiana Public Retirement System, Ohio School Employees Retirement System and the University of California. Because disclosure is limited, the exact market size is difficult to determine, but some estimates put total US private credit at at least $1.3 trillion, roughly tripling since 2015.
The article identifies several large private equity firms with significant private credit operations, including Apollo, Blackstone, Ares, KKR and Carlyle, alongside credit-focused specialists such as Blue Owl. It notes that some major borrowers recently went bankrupt and that certain investors have begun pulling money out, prompting concern about contagion. It also flags the Trump administration's push to broaden access to alternative investments in tax-advantaged retirement accounts, which could draw less-informed individuals into the asset class.
Steele is quoted saying the scale of concern is uncertain: 'The short answer is, we really don't know,' and criticizing the SEC and Treasury for lagging oversight. The Roosevelt authors argue that more disclosure and enforcement of existing rules may be warranted, that regulators should reconsider bank lending links to private credit, and that private credit should not be permitted in retirement plans given current risks. They recommend that any emergency relief prioritize workers and pension beneficiaries before aid to private credit firms.
According to the article, private credit has been attractive to investors because its loans carry higher interest rates, reflecting looser underwriting such as fewer collateral requirements. Institutional investors dominate the asset class, and the piece cites Harvard's $300 million commitment announced in 2018 and at least $100 million investments in 2022 by CalPERS, Indiana Public Retirement System, Ohio School Employees Retirement System and the University of California. Because disclosure is limited, the exact market size is difficult to determine, but some estimates put total US private credit at at least $1.3 trillion, roughly tripling since 2015.
The article identifies several large private equity firms with significant private credit operations, including Apollo, Blackstone, Ares, KKR and Carlyle, alongside credit-focused specialists such as Blue Owl. It notes that some major borrowers recently went bankrupt and that certain investors have begun pulling money out, prompting concern about contagion. It also flags the Trump administration's push to broaden access to alternative investments in tax-advantaged retirement accounts, which could draw less-informed individuals into the asset class.
Steele is quoted saying the scale of concern is uncertain: 'The short answer is, we really don't know,' and criticizing the SEC and Treasury for lagging oversight. The Roosevelt authors argue that more disclosure and enforcement of existing rules may be warranted, that regulators should reconsider bank lending links to private credit, and that private credit should not be permitted in retirement plans given current risks. They recommend that any emergency relief prioritize workers and pension beneficiaries before aid to private credit firms.
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