What do an employee at a dental imaging company, an English Premier League soccer player, and a saver with an account at BlackRock all have in common? They’re all quietly connected to Wall Street’s hottest investment class: private credit.
The debt that most Americans have dealt with — from credit cards to mortgages — has been upfront: there are bills to pay, balances that are visible, and credit ratings that assess a borrower’s creditworthiness. Private credit, or loans made to companies by private investor money gathered into a fund, is much less regulated and much more opaque. The exact terms of the loans, their price, and their ratings can be kept in the shadows and out of regulators’ sight.
Once a relative backwater in finance, private credit has grown into a $3 trillion industry that is increasingly intertwined with the economy. Small and midsize businesses are utilizing these loans to scale up, from manufacturing plants seeking to purchase new equipment to dental practices looking to expand. Meanwhile, private credit has become the hottest business for some of the finance industry’s premier names, including Blackstone and Apollo. To proponents, like Apollo CEO Marc Rowan and Blue Owl co-CEO Mark Lipschultz, access to funding with less onerous requirements is helping American businesses thrive. To naysayers, including UBS Chairman Colm Kelleher and IMF Head Kristalina Georgieva, this explosion of less-transparent debt is unsustainable, and the dubious terms of many of these loans could lead to economic trouble.
This fight has now reached a fever pitch as private credit prepares for a retail investor gold rush. There’s already $80 billion in retail investor cash in private credit, but Deloitte projects that number will rise to $2.4 trillion by the start of the next decade, thanks to changing rules that will allow more everyday Americans to buy the assets. Depending on who you ask, putting private credit into regular Americans’ retirement savings is the key to helping people achieve financial freedom or a recipe for disaster for the entire economy.
A private credit primer
At its most basic, private credit involves pooling money from investors to then lend to businesses. To facilitate this transaction, an investment firm launches a fund and goes around to people or groups with money — pension funds, ultrawealthy individuals, insurance companies, sovereign wealth funds, and endowments — and gives them a sense of what sort of loans they want to make. Once enough investors agree to pony up, the fund then goes out and finds businesses that need a loan. It could be for hiring employees, building a new factory, or acquiring a competitor. In an ideal world, the loan enables the company to expand operations and revenue and repay the loan plus interest, which ultimately benefits the private credit fund and its own investors as a profit.
Companies like these loans because they can be more flexible than bank loans, come together much more quickly, and can be more personalized. Private credit firms and the investors in their funds prefer these loans because the returns are more lucrative than public bonds, with interest rates charged to borrowers 1.5 to 3% higher.
The modern private credit industry dates back to Michael Milken and the junk bond boom of the 1980s, but it really took off in the wake of post-2008 financial crisis banking regulations. New laws such as Dodd-Frank prompted banks to move away from risky loans, allowing lenders that didn’t operate as banks, including private credit funds, to fill the gap. The idea was that only sophisticated institutional investors or fabulously wealthy individuals who could afford to risk losses would have their money on the line. McKinsey researchers estimated that the industry grew tenfold from 2008 to 2023, while Morgan Stanley analysts estimated that the industry expanded from $2 trillion in 2020 to $3 trillion by the beginning of 2025.
As private lending expands, there’s an ever-increasing need for capital to fund it — and only so many billionaires and oil-rich nations to ask for money. Kevin Desai, PWC’s US and Mexico head of deals, told me that competition for investor money is “at an all-time high.” The next step, both regulatorily and logistically, is to open up the funds to private wealth advisors, who can provide access to the money held by America’s well-to-do dentists, doctors, small business owners, and less flashy millionaires. And from there, the final step is to get these products out to anyone with a 401(k) or IRA.
Why is a fairly esoteric and risky industry looking to the general public to fund its growth, especially since it will require tangling with a thicket of new regulations? To hear the private debt lenders tell it, the move is an evangelical calling. The industry claims that access to its outsize returns will bring wealth to the masses and even help alleviate concerns about the future of retirement. Rowan, Apollo’s CEO, has said that countries like Australia, Israel, and Mexico that allow private assets in retirement accounts have had “40% to 50% better outcomes.”
But it’s not so simple. For one, the push may not be as altruistic as the industry claims. Traditional sources of capital for private credit funds are already overallocated to the industry. And while some firms can rest on their laurels, the largest are now publicly traded, which means they face shareholder pressure to continue growing. That’s why many private credit funds are willing to take the regulatory and legal risks to open themselves to the average American — the numbers are simply too juicy. The country has about $12 trillion invested in its 401(k)s, and Boston Consulting Group estimates that private wealth could have a $3 trillion stake by 2030.
The main roadblock has never been the law — private assets can legally be part of a retirement fund — it’s the risk of a lawsuit. American retirement laws give plaintiffs a range of ways they can sue the provider of their retirement plan for not acting as a “fiduciary” or legally-responsible steward of their clients’ financial future. The higher fees associated with these private asset funds create a greater opportunity for future retirees to sue their retirement provider for charging excessive fees. After Trump’s election, many of the industry’s bosses made it clear that they were seeking “litigation relief” to fully move into 401(k) plans. This August, Trump issued an executive order to “democratize access to alternative assets for 401(k) investors” that supported the idea of making it harder to sue, and BlackRock CFO Martin Small told a conference in December that he expects to see real changes in the first quarter of 2026 from both regulatory agencies and Congress.
“I have worked in this space my whole career in asset management, and I can tell you that we have seen more progress on this topic of private markets into 401(k) basically in the last year than we’ve seen in the last 20 years,” Small said.
Invest at your own risk
For years, private asset funds — both on the equity and debt side — were thought of as the ultimate “smart money.” But as the private debt industry eyes your retirement account, the cracks in this mythmaking are starting to show.
At the core of the concerns about private debt is the very thing that makes them special — that they’re private. The deal terms are opaque, and there’s substantially less information about who is lending money to whom and the financial safety of those underlying businesses. Let’s say you’re lending to a pipe-manufacturing company that buys all of its materials from China. If this loan were public, the impact of tariffs would be immediately reflected in its value, with the price dropping substantially in the publicly traded bond market. But in private credit, the lack of real-time pricing could mean your seemingly high-performing portfolio is actually full of lemons, and you might not know that until you get a note that one of the loans in your portfolio is defaulting.
Admittedly, the regular retirement investor isn’t taking full advantage of the information available on their investments as it stands. The retirement process in America, whether the underlying asset is public or private, requires trusting that your employer will act as a good steward of your money.
“You’re hoping that your employer picks the right managers,” Alex Blostein, an analyst for Goldman Sachs who covers the large private equity and credit investors, says.
The bigger concern is that the kinds of groups and industry watchdogs that do dig into these minutiae may also not have access to the information they need to properly assess risks. In the public markets, every bond offering or debt deal is closely scrutinized by huge rating agencies like Moody’s and S&P, which assign publicly available grades. There are ratings in private credit deals, but not only are their ratings under the radar, but some private credit rating firms have attracted attention for the sheer number of ratings they produce per analyst. Egan Jones, which issued over 3,600 ratings on private debt deals in 2024, had only 20 analysts and a substantially higher analyst-to-rating ratio than its competitors. The eye-popping volume recently attracted the attention of the SEC, which is investigating its rating practices.
A couple of bad actors could really spoil the partyAlex Blostein, Goldman Sachs analyst
Michael Dimler, a Senior Vice President of Private Corporate Credit at Morningstar, told me that when the firm reviews private credit deals, it receives the same confidential information that lenders do to generate its ratings, and there are “reliable channels of information” to keep investors in the know. In a recent paper, Morningstar DBRS explained how it uses the same policies, procedures, and methodologies for public and private credit ratings, and that the company receives information like “financial statements” and “credit agreements” to rate both public and private credit.
This is particularly important for retail investors and everyday savers, as some market watchers worry that the industry will offload its worst private assets to unsophisticated retail investors. Their institutional investors and their own pocketbooks could reap a substantial payout by selling off bad assets at high prices, while retail investors will be left holding worthless assets.
“A couple of bad actors could really spoil the party,” Blostein says, noting that “some bad examples” could “create big reputational issues for the whole channel” even if most are “trying to do the best thing for their customers.”
Beyond the fundamental concerns with the private debt business, there are also growing worries that the asset class is not delivering the kind of mega-returns that justify the higher risks. As with credit ratings, actually comparing the public and private debt markets is harder than it sounds. While private credit has a strong case for outperforming its public market equivalents due to the higher interest rates, a recent study by business school academics at Johns Hopkins and UC Irvine argued that the industry’s returns are “illusory” and that it fails to consistently beat the public markets. Industry executives and insiders have strongly disputed their findings, but it’s a known problem that comparing the performance of different assets in the less standardized private credit market can be challenging.
“The investors receive thousands of pages of PDFs, but it is very hard for them to aggregate and have an overview of what is going on and where the money goes,” Oxford economist Ludovic Phallipou told the UK House of Lords last year. This presents “quite a mess,” and he recommends more standardization of how information is presented.
The fear of a private credit blowup
Just as owing money to someone else is a bit nerve-racking, so can relying on being paid back. This is especially true when questions about the borrower’s financial stability begin to arise. Therein lies the real heartburn about private credit: What happens if the economy slows and a rash of these companies can’t pay back their loans at once? Or a series of private credit funds come under stress?
Goldman Sachs’ Blostein tells me that private credit is unlikely to cause a market contagion. In layman’s terms, you can’t pull your money out of these funds whenever you feel like it, with “redemptions” usually restricted to 5% of the fund’s total value per quarter. This prevents these funds from being forced to sell off their assets, which would drive down prices and cause a negative feedback loop.
“The bank-run style contagion doesn’t really exist here,” Blostein says, explaining that it’s hard to imagine funds blowing up the way, say, Silicon Valley Bank or Lehman Brothers did.
Private crediteers also argue that the risk of the asset class causing issues for the financial system or the economy is overblown. For one thing, the industry is still less than a tenth of the size of the US corporate bond market, which is valued at $36 trillion. Advocates also point out that private credit funds are required to maintain a more protective cash reserve compared to the loans they make, compared to banks. While the big banks can lend out more than 10 times what they have in their coffers, the average leverage in private credit is around 1.4 times, said Blackstone CEO Steve Schwarzman. Responding to JPMorgan CEO Jamie Dimon’s 2024 quote that “there could be hell to pay” if the private credit market starts to crack, Apollo CEO Rowan said that Dimon has it wrong.
“Every dollar that moves out of the banking industry and into the investment marketplace makes the system safer and more resilient and less levered,” Rowan said.
But there are many other ways these funds are connected to the broader financial world. Institutional investors who provide the capital to launch private debt funds can actually borrow the money they put in, banking on high returns. Private credit funds can borrow money to make investments before investors are able to wire over their commitments or to help cash out investors earlier. These additional levels of leverage increase the potential blast zone for any private credit failures. And the source for many of these loans? Banks. So even if the mega-banks have exited the riskiest lending directly, they are still enmeshed with private investors. In a paper published earlier this year, the Federal Reserve Bank of Boston concluded that there is certainly risk of bank exposure to private credit, but that bank loans to the sector are largely secured and would be among the first to be repaid. This would blunt the broader financial impact of a failure in private credit, though the money would likely be lost in “severely adverse economic conditions.”
Michael Imerman, who co-authored the piece about private credit returns not being up to snuff, said he did “not want to cry wolf”, but there’s still a “non-zero” chance private credit could cause a crisis in ways that people aren’t anticipating. After all, as a researcher who began studying big banks in 2007, he has seen “black swan” events before.
“There’s no way that all thousand loans or ten thousand loans will default at the same time. It’s a consistent and reliable stream of income, let’s add that to your retirement account,” Immernam says, mimicking the pre-crash mentality. “What happened? They were wrong, all 10,000 loans defaulted at the same time, and retirement accounts took a giant hit.”
Beyond the possibility of a larger meltdown, some of the industry’s biggest critics, such as Phalippou, are concerned about other issues in private credit, like stronger protections for investors.
“I always thought it was quite an emergency, and now with retail in that space, I think it’s a drama to not have strong investor protection,” Phallipou told the UK Parliament.
As for the companies being lent to, the biggest risk is that they may default. Already, some are taking on additional debt to pay off their initial loans or the interest, a process known as “extend and pretend.” And if there’s a wave of defaults, lenders are likely to become much more selective with who they lend to and increase what they charge to lend, making it even harder for companies to access debt without signing up for extremely unfavorable terms.
“The only way to improve perception around all of these issues is more transparency,” Blostein says. “And we would always argue for more clarity, more transparency, more data that will enable people to really think through all these issues.”
While the debate over broader risks rages on, private credit continues to grow. Even firms run by skeptics like JPMorgan are putting aside $50 billion to invest in private credit. And, soon enough, you will be part of the potential money supply. That could create a more stable private credit market, focused on consistent returns for retail customers and providing them with an opportunity to invest in the 87% of US companies with more than $100 million in revenue that are privately held. Or it could mean your retirement is going to be gambled on increasingly novel and risky credit structures that could come crashing down in the next crisis.
Alex Nicoll is a reporter at Business Insider writing about private equity, alternative asset management, and the impact of these growing sectors on the wider world.
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