Are Private Credit’s Double-Digit Yields Too Good To Be True?

Private credit has gone from a backwater to the hottest asset class of 2023 with firms like Blackstone and Apollo jockeying for business, and assets approaching $1.5 trillion. Is Wall Street’s latest lending boom heading for trouble?

^{By Hank Tucker, Forbes Staff}

Alternative investment managers have spent the first half of 2023 trumpeting a similar refrain to investors wary of this year’s stock market bounce: look at private credit.

The industry has ballooned to $1.5 trillion in assets, more than tripling in the last decade, with every major alternative asset manager competing to lend to private businesses as an alternative to typical banks. Private credit loans generally come with a floating rate pegged to a base rate like the London Interbank Offered Rate (Libor). With one year LIBOR rates nearly 6% and private lenders tacking on spreads of 5-7 percentage points on top of that, many funds are offering double-digit yields to investors.