What this module covers
Private equity owns companies; private credit lends to them. The lender sits on a different side of the capital structure, carries a different kind of risk and is paid in a different pattern. This module describes what private credit is and why it grew, the main strategies, the mortgage investment corporation as a Canadian structure, how the income is generated, the risks the class carries, and what it requires of the capital committed to it.
- What private credit is
- Direct lending and senior secured loans
- Mezzanine debt
- Mortgage investment corporations
- Other private credit strategies
- How the income is generated
- The risks
- What the asset class requires
What private credit is
Private credit is lending that takes place outside the traditional banking system. The lender is a fund, a pooled vehicle or another non-bank institution rather than a bank, and the loans are negotiated privately rather than issued as bonds that trade on a market.
The class grew as banks pulled back. After the 2008 financial crisis, banks became more heavily regulated and more cautious about whom they lent to and on what terms. That left a gap. Businesses that could not obtain bank financing, or did not want to, turned to non-bank lenders willing to provide capital, at higher interest rates. Private credit is the name for the lending that filled that gap. It has since grown from a niche strategy into a large global asset class.