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The Evolution of Private Credit

By JB Capital 

Over the past decade, a seismic shift has occurred in the financial landscape: the emergence of private credit as a recognized asset class. Initially met with skepticism, it has since proven its worth, transforming the world of finance and investment. Today, private credit has become a cornerstone of the financial sector, offering a myriad of strategies and access points for investors. Today, it boasts $1.5 trillion in outstanding allocations, a testament to its growth and acceptance in the investment community.

The Growth and Evolution of Private Credit

Private credit, often referred to as “direct lending” or “private lending”, has seen rapid growth over the past decade. This growth can be attributed to global M&A activity, low interest rates, stock market growth, and increasing private equity investment. In 2021, M&A transaction volumes reached a high of nearly $6 trillion according to financial data and infrastructure firm Refinitiv.

Before the financial crisis, most of the financing for these transactions would have come from public debt markets or banks. However, regulatory changes designed to strengthen the financial system following the crisis have significantly increased the minimum size of public debt market issuances, making the market inaccessible to all but the largest companies. This has also reduced the amounts that banks can lend, leading to a significant decrease in banks’ share of middle market financings.

As a result, private credit managers like JB Capital have stepped in to fill the gap, becoming deeply involved in M&A and offering flexible financing options to borrowers.

The Role of JB Capital in the Private Credit Market

JB Capital has become a preferred lender for those seeking alternative capital solutions. It provides not only capital but also financial expertise and operational support to a growing portfolio of companies throughout the country. JB Capital offers investors direct access to high-quality, privately originated credits, ensuring consistent monthly income, institutional underwriting, and transparent reporting.

The Size and Future of the Private Credit Market

Private credit has grown in-step with the expansion of private equity over the past decade. In 2021, private equity buyout activity peaked at $851 billion, or about 15% of global M&A transaction volumes. This growth in private equity has increased private equity sponsors’ already-healthy dry powder (cash that’s waiting to be invested) to more than $2.5 trillion. This is considered a potential tailwind for private credit as it will likely require significant financing in the form of private credit.

Initially serving private equity businesses, the private credit market experienced a surge in growth as traditional banks retracted their services following the global financial crisis. This burgeoning sector has seen an impressive tripling in size since 2015, reaching an estimated $1.5 trillion, further underscoring the pivotal role of private credit in the financial landscape.

The Bottom Line

The evolution of private credit has been marked by significant growth and transformation, with companies like JB Capital playing a crucial role in this evolving landscape. As we look to the future, the private credit market is poised for further expansion, offering exciting opportunities for both borrowers and investors.

Interested in exploring the potential of private credit in your portfolio? Reach out to JB Capital, your trusted partner in the private credit market, and discover how we can help you achieve your financial goals.