January 2025
Private credit first emerged as a major asset class following the Global Financial Crisis as new regulations such as Basel III increasingly restricted traditional bank lending. Amplified by soaring inflation and interest rates in 2022, and alongside high-profile banking stress events such as the collapse of Silicon Valley Bank, private credit has evolved from a lender of last resort into an institutional asset class rivalling the depth and breadth of the high-yield bond and leveraged loan markets. In recent years, persistent capital-markets volatility has reinforced private credit’s role, firmly establishing it as a permanent component of investor portfolios.
Historically, private credit has enabled investors to capture an attractive illiquidity premium without compromising credit quality, while providing borrowers with certainty of capital, speed of execution, and bespoke financing solutions. In an environment of heightened tariff uncertainty, private credit has continued to deliver on this value proposition, although covenants could start to slip. Private equity firms are currently holding approximately $1.6 trillion of dry powder, up from roughly $660 billion in 20151, and as this capital is deployed, demand for flexible and reliable financing is expected to continue increasing.
Against this backdrop, private credit offers a compelling blend of yield, diversification, and structural downside protection, with the potential to help mitigate market volatility. However, important questions remain regarding how, when, and to what extent private credit should be incorporated into an investor’s portfolio, and this paper seeks to address those fundamental considerations.
Extract from the paper "Integrating Private Credit in Family Office Portfolios"