In the wake of the most aggressive monetary policy tightening in forty years, the largest bank failures since the Great Financial Crisis (GFC) and elevated risks of a more pronounced economic downturn, credit conditions are likely to get tighter in the quarters to come as traditional bank lenders scale back funding and shore up balance sheets. Given higher market rates, lush fees and the credit contraction already underway, particularly at regional/community banks, a diverse group ranging from private equity to traditional, big-box money management firms to sovereign wealth funds are rushing in to capitalize on Wall Street’s hottest opportunity- Private Credit. With lending growth estimates in the trillions and targeted returns ranging from high single digits to high teens, it’s no wonder that the private credit sector has seen a deluge of new entrants over the past year. The private credit sector, which traces its origins back to lending to private equity businesses decades ago, grew rapidly when traditional banks retreated from lending post the GFC and has nearly tripled in size since 2015 to an estimated $1.5 trillion, with some forecasting a potential market size upwards of $50 trillion.
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