Part 2/8:
Private credit isn't a novel concept, but its rapid ascent in popularity marks a shift in the lending landscape. Major players in the private credit market, such as Apollo, Ares, and Blue Owl, are known for providing collateralized loans secured by physical assets. Initially, this type of lending often involved high-quality loans, generally regarded as safer investments.
However, the narrative around private credit has shifted, leading to questions about its future. Research from the Federal Reserve Bank of Boston raises concerns regarding systemic risks as banks increasingly provide credit lines to private credit firms. The fundamental question arises: are these financial institutions exposing themselves to business and recession risks by backing private credit lending practices?