Private Credit: an old market, newly misunderstood

The conversation has narrowed to a single storyline: that private credit is risky, overheated and a potential source of instability. It’s a neat narrative. But it’s also wrong.

The problem isn’t the scrutiny; it’s the oversimplification. A label that should help investors understand a diverse and evolving asset class has instead become shorthand for a very small slice of it. 

If we continue to view private credit through this distorted lens, investors risk misjudging an asset class that could play an important — even stabilising — role in their portfolios.

A label that shrinks an entire asset class

If headlines are to be believed, private credit is all about direct lending to highly leveraged, private-equity-backed companies. 

This part of the market can indeed experience stress — and when it does, it generates clicks. But direct lending represents only a fraction of what private credit is. 

When commentators use ‘private credit’ and ‘direct lending’ interchangeably, they collapse a sprawling, multifaceted market into its riskiest corner. 

It’s no surprise, then, that many people assume the entire asset class is a recent invention, untested, opaque and inherently high risk.

None of this is true.

A market with deeper roots than most realise

Private credit — properly defined as non-bank lending that is privately issued and not publicly traded — has existed for centuries. Long before modern banking, private financing arrangements powered trade, infrastructure, and the development of cities and industries. That legacy continues today.

Take the investment-grade private placement market. Institutional investors have been active participants here for more than a century, with annual issuance exceeding US$100 billion in many years. 

This market offers strong credit quality, bespoke covenant protection and historically low default rates. Yet it rarely makes the headlines — perhaps because a century of quietly doing its job doesn’t lend itself to sensationalism. 

Similarly, areas like infrastructure debt and commercial real estate lending represent large, established segments of private credit. These markets support essential services — from utilities to logistics — and can provide long-dated, stable income streams. 

Other segments, such as fund finance and some parts of asset-backed finance, haven’t been around as long but can provide investors with investment-grade assets capable of delivering enhanced returns with low levels of credit risk.  

For many investors, this is what ‘private credit’ actually looks like.

Why the misunderstanding matters

The danger of a misleading label is not just conceptual; it has real investment consequences.

If investors see private credit only as a leveraged-lending proxy, they may walk away from opportunities that offer attractive yields, strong protections and genuine diversification. 

They may also underestimate the role private credit can play in today’s environment — an environment where public fixed-income markets are adjusting to higher uncertainty, geopolitical tensions are injecting volatility and investors are once again thinking seriously about resilience.

Well-structured private credit can offer higher yields without a corresponding leap in credit risk, thanks to tighter covenants, bespoke security arrangements and the illiquidity premium. In other words, investors are compensated for giving up daily liquidity — a trade off many long-term asset owners are more than capable of making. 

A moment for clarity — and opportunity

If 2025 told us anything, it is that labels can become lazy. Risk isn’t inherent to the term ‘private credit’; it is inherent to specific borrowers, structures and underwriting decisions. 

This year, the dispersion within private credit is likely to widen as markets adjust to stickier inflation, uneven growth and shifting bank-lending conditions.

This is precisely why investors should be looking more closely at private credit, not less. For those willing to look beyond the headlines, the asset class offers something unusually rare in today’s markets: a combination of yield, structural protection and diversification.

But to seize the opportunity, investors must stop treating private credit as a monolith or as a new fad. It is neither. It is a diverse set of financing markets that have supported the real economy for decades, and which will continue to do so long after the news cycle has moved on.

The real question

So, the real question is not: “Should investors be worried about private credit?” It is: “Which part of private credit do you mean?”

Once you answer that, the picture becomes far clearer — and often far more compelling — than the headlines suggest.