Key Takeaways
- • Private credit has grown from roughly $0.2 billion in 2000 and about $1 trillion in 2019 to an estimated $1.5-2.0 trillion by the end of 2024, with around $1 trillion of that in the United States, according to analyst estimates cited by Econofact.
- • The Cliffwater Direct Credit Index returned an average of 9.4 percent annualized from 2015 to 2025, versus 6.5 percent for high yield bonds and 2 percent for the US aggregate bond index, and its largest peak-to-trough decline since 2015 was under 5 percent during COVID in 2020.
- • Stress emerged in early 2026: CDLI total returns dipped to 1.1 percent in Q1 2026, software exposure was about 21 percent of BDC investments per J.P. Morgan estimates (about 40 percent including other tech and business services), and several funds applied gates capping withdrawals at up to 5 percent.
- • Retail access is expanding through SEC easing of BDC constraints since March 2025 and a March 2026 proposed Labor Department rule to allow alternatives, including private credit, in 401(k) accounts, while the SEC estimates 12.6 percent of the US population qualifies as accredited investors.
- • Econofact assesses that private credit is not currently a systemic threat because it remains largely funded by long-term institutional investors, but the semiliquid gated structure has not been fully tested under stress.
Summary
Private credit, which provides corporate lending outside the banking system and outside the capital requirements that apply to banks, has grown substantially over the past decade. Econofact cites analyst estimates that the market rose from around $0.2 billion in 2000 to about $1 trillion in 2019 and reached $1.5-2.0 trillion by the end of 2024. The US accounts for roughly $1 trillion of this lending, where the market is approaching the scale of bank commercial and industrial loans. Funding comes mainly from institutional investors such as insurance companies and pension funds, with many funds also using bank revolving credit lines to enhance returns and protect liquidity.
The asset class has historically delivered high, stable returns. Per the Cliffwater Direct Credit Index, annualized returns from 2015 to 2025 averaged 9.4 percent, compared with 6.5 percent for high yield bonds and 2 percent for the US aggregate bond index. The index's largest peak-to-trough decline since 2015 occurred during the 2020 COVID shock, when it fell almost 5 percent, less than other bond indexes.
Retail participation has grown through business development companies (BDCs), many of which have shifted to non-traded, perpetual structures with quarterly redemption windows subject to discretionary gates. Econofact notes that SEC estimates put 12.6 percent of the US population within the accredited investor standard, and that the SEC has eased multiple BDC constraints since March 2025. In March 2026, the US Labor Department circulated for comment a proposed rule that would make it easier to hold alternatives, including private credit, in 401(k) accounts. Private credit funds, unlike bank deposits, carry no deposit insurance or central bank lender-of-last-resort backstop.
The sector came under stress in late 2025 and early 2026, following several high-profile borrower bankruptcies in fall 2025, falling market rates that reduced relative attractiveness, and concerns that AI advances could erode software companies that were heavy private credit borrowers. J.P. Morgan analysts estimate software loans account for 21 percent of BDC investments, rising to 40 percent with other tech and business services. CDLI returns fell to 1.1 percent in Q1 2026 as defaults, unrealized losses and non-accrual loans rose. Inflows dwindled, redemption requests increased, and several funds applied gates limiting withdrawals to at most 5 percent. Blue Owl, which has heavy software exposure, experienced the largest markdowns and withdrawals. Redemption pressure has continued into the second quarter.
IMF, FSB and Group of 30 reports have flagged private credit vulnerabilities, particularly opacity that makes leverage and interconnections difficult to gauge. Econofact judges that systemic risk remains broadly contained, since funding is largely long-term and institutional, leverage (especially short-term borrowing) is limited for most funds, and bank exposure is small relative to bank capital. Officials including Treasury Secretary Scott Bessent and J.P. Morgan chief Jamie Dimon have said they do not expect systemic problems. The open question is whether the episode prompts a useful tightening of lending standards or marks a lasting inflection toward lower growth and returns. Econofact flags as a key concern that the semiliquid gated structure has not been tested under sustained stress, and that a prolonged slow-motion run could exhaust liquidity buffers and expose investors to losses.
The asset class has historically delivered high, stable returns. Per the Cliffwater Direct Credit Index, annualized returns from 2015 to 2025 averaged 9.4 percent, compared with 6.5 percent for high yield bonds and 2 percent for the US aggregate bond index. The index's largest peak-to-trough decline since 2015 occurred during the 2020 COVID shock, when it fell almost 5 percent, less than other bond indexes.
Retail participation has grown through business development companies (BDCs), many of which have shifted to non-traded, perpetual structures with quarterly redemption windows subject to discretionary gates. Econofact notes that SEC estimates put 12.6 percent of the US population within the accredited investor standard, and that the SEC has eased multiple BDC constraints since March 2025. In March 2026, the US Labor Department circulated for comment a proposed rule that would make it easier to hold alternatives, including private credit, in 401(k) accounts. Private credit funds, unlike bank deposits, carry no deposit insurance or central bank lender-of-last-resort backstop.
The sector came under stress in late 2025 and early 2026, following several high-profile borrower bankruptcies in fall 2025, falling market rates that reduced relative attractiveness, and concerns that AI advances could erode software companies that were heavy private credit borrowers. J.P. Morgan analysts estimate software loans account for 21 percent of BDC investments, rising to 40 percent with other tech and business services. CDLI returns fell to 1.1 percent in Q1 2026 as defaults, unrealized losses and non-accrual loans rose. Inflows dwindled, redemption requests increased, and several funds applied gates limiting withdrawals to at most 5 percent. Blue Owl, which has heavy software exposure, experienced the largest markdowns and withdrawals. Redemption pressure has continued into the second quarter.
IMF, FSB and Group of 30 reports have flagged private credit vulnerabilities, particularly opacity that makes leverage and interconnections difficult to gauge. Econofact judges that systemic risk remains broadly contained, since funding is largely long-term and institutional, leverage (especially short-term borrowing) is limited for most funds, and bank exposure is small relative to bank capital. Officials including Treasury Secretary Scott Bessent and J.P. Morgan chief Jamie Dimon have said they do not expect systemic problems. The open question is whether the episode prompts a useful tightening of lending standards or marks a lasting inflection toward lower growth and returns. Econofact flags as a key concern that the semiliquid gated structure has not been tested under sustained stress, and that a prolonged slow-motion run could exhaust liquidity buffers and expose investors to losses.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.