Michael Gross didn’t mince words about the allure of private credit when he took the stage in Dubai. The co-founder of SLR Capital Partners stood before a packed room at the inaugural Bloomberg Invest conference, arguing that the asset class has become so dominant that it’s now driving global returns more reliably than liquid equities or bonds. It’s a bold claim for a sector that used to be the secret weapon of hedge funds and is now the front page story of institutional finance. The energy in the room was palpable, charged with the tension of investors scrambling to find yield in a world where rates are finally moving off their historic highs. Gross’s message was clear: the money is moving, and it’s moving into debt.
The Debt Renaissance Explained
For two decades, the story of investing was simple: chase growth stocks and sit it out. The era of cheap money printed by central banks made that strategy work, even if it felt a bit like standing still on a moving walkway. But that walkway has stopped, or rather, it’s started moving in a harder direction. Inflation has bitten into the real value of fixed income, and liquid bonds have offered pitiful returns, often negative once you adjust for economic realities.
Investors are tired of waiting for the next big tech IPO or the next earnings surprise to move the needle. They want cash now, and they want it secure, which is exactly what private credit provides.
The mechanics are straightforward but powerful: companies are issuing debt directly to private funds, bypassing the traditional syndication process that banks used to dominate. This cuts out the middleman, which means higher yields for the investor and faster access to capital for the borrower. SLR Capital Partners has built a billion-dollar book on this model, and they’re not alone. The gap between what public corporate bonds pay and what private debt pays has widened to a premium that is difficult to ignore for any portfolio manager with a mandate to protect capital.
It’s a structural shift, not a fad, driven by the retirement of institutional money from legacy banking structures. When banks pulled back from lending to leverageaged middle-market companies after 2008, they left a vacuum. Private credit walked in and filled it, and they never left.
Why Yield Chasing Isn’t Dead
Critics often label yield chasing as reckless, a relic of the dot-com bubble or the subprime crisis. That’s a lazy comparison that ignores the fundamental differences in credit quality and collateral. The investors in Dubai weren’t looking for high-risk, high-reward lottery tickets; they were looking for 8% to 10% annualized returns with a level of security that liquid markets simply cannot offer right now. Gross emphasized that the key to this strategy is not just grabbing any debt, but underwriting it meticulously.
It’s a trade-off between liquidity and return, and most institutional clients have finally accepted that trade-off. They’d rather lock up their capital for 5 to 7 years and earn a solid double-digit yield than watch it erode in a savings account or a short-duration bond fund.
There’s a psychological component to this shift that’s easy to overlook. After a decade of low interest rates, the cost of capital changed behavior across the entire economy. Companies became more conservative with their balance sheets, and now they’re hungry for that same cheap money, but only from sources that don’t demand daily liquidity. Private lenders can afford to wait, to negotiate covenants, and to structure deals that are messy but profitable.
That’s a harder sell than it sounds to a CIO who has to report mark-to-market values every quarter to a board of directors. But the data suggests that the long-term holders are winning, and the short-term traders are scrambling to catch up. The line between “alternative” and “core” investing is blurring fast, and few assets illustrate that better than private credit.
The India Angle: A Massive Opportunity
For Indian investors, this story reads like a blueprint, not a novelty. India’s corporate sector is currently in a borrowing bonanza, with large enterprise value deals being signed weekly in sectors from renewable energy to large-cap manufacturing. However, the retail investor in India has had very limited access to these high-yield private market instruments until the last 3 years. The National Investment and Infrastructure Fund (NIIF) and various private credit funds are now structured to accept larger ticket sizes, opening the door for HNI (High Net Worth Individual) and UHNW clients.
This is a huge deal because the return on liquid Indian debt funds is often in the 6-7% range, while private credit in Indian mid-caps is offering 10-12%. If you can access it, the math is compelling.
The regulatory environment in India is also catching up, with SEBI rolling out master netting contracts for private placement funds that make exit and liquidity a bit less of a nightmare. For Indians abroad, this creates a dual-track opportunity: they can invest in Indian private credit through international vehicles or keep their US dollar assets in global private credit funds like SLR’s. It’s a way to hedge currency risk while capturing growth from a rapidly expanding economy. The correlation between Indian private equity and credit performance is improving as the governance standards in Indian corporate lending tighten up.
It’s not without risk, of course, but the growth potential is undeniable. Ignoring this asset class in an Indian portfolio is akin to ignoring global equities in the 1990s.
The Risks Nobody Talks About
Let’s be clear: private credit is not a savings account. It’s an illiquid, opaque investment class that requires deep expertise to evaluate. The risk isn’t that a company will never pay back its loan, but that it will take 3 years longer than expected, trapping your capital just when you need it. This is the “liquidity risk” that keeps CIOs awake at night.
In a downturn, you can’t sell a private credit position on a secondary market that doesn’t really exist yet. You’re stuck. That’s a harder sell than it sounds to an investor who might need to fund a client withdrawal or a personal emergency. The opacity of the underlying assets means you’re trusting the fund manager’s diligence more than you would in a transparent, exchange-traded bond.
Historical context provides a sobering reminder. The 2008 crisis showed how quickly “safe” paper can turn toxic. While private credit is structurally more resilient than subprime mortgages, it is not immune to systemic shocks. If a recession hits hard, defaults will rise, and the recovery period will be long.
The key is diversification: no single sector, no single geography, no single currency should dominate the book. That’s a fundamental principle of risk management that gets ignored in the hype cycle. But the fact is, the current vintages of private credit are priced for a level of growth that may not materialize if the global economy slows down more than expected. You’re betting on the durability of the mid-cap corporate sector in a rising rate environment.
What Comes Next for Global Capital
The next phase of this trend will likely see a consolidation of the private credit market. The smaller, less experienced players will struggle to raise the billions of dollars needed to remain competitive in a market dominated by giants like SLR, Ares, and Blackstone. This consolidation will lead to better risk management and more professionalized underwriting, which is good for the long-term health of the asset class. We’re seeing the emergence of “credit-as-a-service” models, where funds act more like banks, providing ongoing relationship management to their borrowers. This shift changes the dynamic from a one-time transaction to a long-term partnership, which reduces the risk of surprise defaults because the lender is constantly monitoring the borrower’s health.
Regulators are also watching this space closely. The US Department of Labor and the European Securities and Markets Authority have both signaled that they want more transparency and better disclosure standards for private credit funds. This is a double-edged sword: it increases compliance costs for managers but boosts confidence for investors. The deadline for new disclosure rules in the US is approaching in 2025, which will force a wave of reporting that could reveal the true extent of leverage in these funds.
For now, the momentum is undeniable. Capital is flowing into private credit at a record pace, and the industry is growing faster than the legacy banking sector is shrinking. The next big story won’t be about whether private credit will exist in 5 years, but about who will own the top 10 firms in the market. That’s a race worth watching.
Frequently Asked Questions
Why is private credit becoming more popular?
Investors are seeking higher yields in a low-growth, high-inflation environment. Private credit offers returns that are significantly higher than liquid bonds, with more stable cash flows than equities. It’s a way to generate income without taking on equity-level volatility.
Is private credit safe for individual investors?
It depends on the fund and the investor’s liquidity needs. Private credit is illiquid, meaning you can’t sell your position easily if you need cash quickly. It’s best suited for investors with a long investment horizon and a high risk tolerance.
How does private credit affect India?
It provides access to high-yield opportunities in the Indian corporate sector, which is currently growing rapidly. Indian investors can now access global private credit funds, offering a way to diversify their portfolios across currencies and geographies. It’s a significant development for Indian HNIs looking to beat inflation.
What are the main risks of investing in private credit?
The biggest risks are illiquidity and opacity. You can’t easily sell your position, and you have limited visibility into the underlying assets. There’s also credit risk, where borrowers may default on their loans, especially during economic downturns.
Source: Bloomberg Markets
Source: Bloomberg Markets
