Contributors: Shane Dunn, Walid Safri, Barkin Sayiner, Roger Leslie, Michael Campbell
What is private debt and why is it so popular?
Private debt has been around for decades as an alternative source of capital to traditional lending offered by banks. It wasn’t until after the financial crisis of 2008 that private debt grew in popularity as traditional banks became more regulated, focused on disciplined lending criteria and stepping back from providing capital. In fact, back in 2000, the private debt market was merely US$43 billion. At June 2019, it was estimated to be a US$800 billion market and on track to achieve a market size of US$1 trillion in the not too distant future.
Another big contributor to the growing private debt market is the overall low interest rate environment experienced over the past decade, as investors ranging from large institutional players, to family offices to investors looking for a better yields in their investment portfolio became attracted to the private debt market.
As COVID has affected the global economy in a negative way, many traditional banks have pulled back capital as concerns of default and higher risk plague their portfolios. This has presented an opportunity for the private debt market to step up and fill in the gap.