Concept

Private Credit

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Private Credit

Private credit is lending that happens outside the regulated banking system, funded by investors — pension funds, insurers, asset managers, wealthy individuals — rather than by a bank’s own balance sheet. The term carries two distinct meanings, and conflating them is the single most common confusion around it, as Marc Rowan argues at length in Marc Rowan on Financial Market Evolution and University Governance.

In the popular press, ‘private credit’ refers narrowly to direct lending: below-investment-grade loans made straight to companies, most often to finance leveraged buyouts, bypassing both banks and the public bond market. Rowan sizes this narrow market at roughly $1.5 trillion — meaningful, but a small slice of the credit system as a whole. His own, much broader usage treats private credit as everything not sitting on a bank balance sheet: ordinary business loans, consumer credit, mortgages, and asset-backed lending that has migrated from banks to investors over several decades. On this definition, the market is roughly $40 trillion — the majority of all US corporate and consumer credit, now that banks hold only about 20 percent of it.

Why ‘private’ no longer implies ‘risky’

The older heuristic treated ‘public’ and ‘liquid’ as a proxy for ‘safe’, and ‘private’ and ‘illiquid’ as a proxy for ‘risky’. Rowan argues this proxy has broken down. When private markets meant chiefly private equity, venture capital, and hedge funds, and public markets were public for creditworthy reasons, the heuristic held reasonably well. Both categories have since expanded to cover the same full range of credit quality — private credit runs from AA-rated asset-backed lending to distressed, equity-like risk, exactly as public markets do. Liquidity, not credit quality, is now the axis that actually separates the two: a private loan can be safer than a concentrated, richly valued public index, and a public bond can sit in a market where genuine buyers are scarce under stress.

The mechanism: disintermediation and deleveraging

Rowan’s structural argument for why the shift matters: a bank is typically levered ten to twelve times, borrowing short-term deposits to fund long-term loans. The identical loan, held inside a mutual fund, an insurance general account, or a private-credit vehicle, carries none of that leverage — it is funded directly by investor capital with no promise of daily liquidity. Every dollar of credit that migrates from a bank balance sheet into an unlevered investment vehicle therefore removes leverage from the system as a whole, even as the aggregate size of private credit grows. This is the basis for his claim that the shift toward private credit has made the US financial system more resilient than economies still dependent on only two capital sources — equity and bank debt, as in most of Asia and much of Europe — rather than a sign of dangerous, unregulated growth.

Historical evolution

Private credit is the latest stage in a longer pattern of financial-product innovation Rowan traces across his own 40-year career: the high-yield bond market emerged in the 1980s (Rowan’s own start, at Drexel Burnham Lambert), followed by leveraged loans, securitised products, and exchange-traded funds — each initially unfamiliar, each eventually mainstream. He frames private credit’s current scale as a continuation of this pattern rather than a discrete new phenomenon, and expects the market’s dominant products to look as different in 15–20 years as today’s differ from the pre-high-yield era.

Where mainstream views differ

Rowan’s account — dispersion of credit away from banks as an unambiguous, deleveraging improvement in systemic resilience — is not the consensus view. Financial regulators and commentators, including officials at the IMF and Federal Reserve and rival bank executives, have repeatedly flagged private credit’s rapid growth as a source of financial-stability risk rather than only a mitigant, on three grounds the episode does not address: opacity (private loans are not publicly priced, so the true health of a private-credit portfolio is harder for outsiders, and sometimes for insurers’ own regulators, to verify in real time); valuation (private assets are marked to internal models rather than market prices, which can smooth away losses that a comparable public bond would show immediately); and correlated exposure (much of private credit is now funded by insurers like Athene, whose policyholders expect their claims to be paid regardless of whether the underlying private loans can be sold quickly — precisely the liquidity mismatch Rowan says insurance avoids by design, but which critics argue can still emerge if a wave of claims coincides with a downturn in the private book). Rowan’s own liquidity discussion in the episode — the UK’s 2022 gilt/LDI crisis, and his expectation of sharper price adjustment once markets face a genuine risk-off shock — is itself close to this critique, even though he reads it as a case for repricing illiquidity rather than evidence against the broader shift.

A concrete stress test of the critique arrived in early 2026, dissected in Private Credit's Black Box and Why It's Not 2008 But Still Risky by Sebastian Mallaby and Rebecca Patterson. Where Rowan treats mark-to-model valuation as benign, Mallaby calls it ‘a disguise’: because private assets are revalued only quarterly against internal models, an informed investor who knows the true value has already fallen can redeem at the still-inflated mark before it catches up — a hidden first-mover advantage that turns the same illiquidity Rowan prizes as a stabiliser into a second-run risk layered on top of the ordinary liquidity mismatch. The mechanism showed up in the numbers: roughly $10bn of redemption requests hit the sector in Q1 2026, only about 70% honoured, with Blue Owl first to gate and the listed managers (Blackstone, KKR, Blue Owl, Ares, Apollo) off more than 25% on the year. Patterson and Mallaby still reject the 2008 parallel — the exposure is smaller and concentrated among institutions and the wealthy rather than dispersed through every mortgage — but stress the point Rowan’s account glides past: private credit sits outside the safety net, with no FDIC insurance and no Fed discount window, and post-2008 reforms stripped the Fed of the authority to lend to troubled non-banks it used last time.

In the wiki