What is Private Credit?

Private credit is a subset of fixed income within the broader alternative investment universe. It refers to non-bank lending—that is, loans made by non-traditional lenders (like investment funds, asset managers, or private equity firms) rather than banks.It typically involves direct lending to companies, often small or mid-sized, that need capital but may not have access to public debt markets or traditional bank financing.

What are the common type of Private Credit strategies?

Direct lending: Loans to middle-market companies, often senior secured.
Mezzanine financing: Subordinated debt with equity-like returns, used in buyouts or expansions.
Distressed debt: Buying debt from struggling companies at a discount.
Asset-backed lending: Loans secured by real estate, receivables, or other assets.

Why is there a RISE of Private Credit?
Why is borrower prefer Private Credit over a traditional Bank loan?

Bank Regulation & Retrenchment

Post-2008 regulations (e.g., Basel III) increased capital requirements for banks, making traditional lending—especially to SMEs, real estate, and leveraged borrowers—less attractive.
Banks pulled back from riskier or more complex lending, creating a funding gap that private credit managers stepped in to fill.

Investor is now Actively Searching for Yield

In a low interest rate environment (particularly post-GFC and during COVID-19), traditional fixed income offered low returns.
Private credit offers higher yields (often 6–12%+) with floating rate structures, making it attractive compared to public debt or government bonds.

Private Equity
Booming

The growth in private equity (PE) has boosted demand for private debt to finance buyouts, recapitalizations, and growth.
Private equity sponsors often prefer reliable, fast-moving private lenders over slow or inflexible banks.

Customized & Flexible Structure

Private credit can be tailored (e.g., unitranche, mezzanine, PIK), providing bespoke solutions that are hard to replicate in public markets.
Borrowers get speed, discretion, and flexibility, especially important for midsize or complex deals.

Strong Historical Risk-Adjusted Returns

Private credit has historically delivered low default rates and high recovery rates, especially in senior secured lending.
The asset class has become more institutionalized, with managers developing robust risk management frameworks.

Limited Correlation with Public Markets

Private credit’s illiquidity premium and deal-specific nature can make it less volatile and less correlated with public equities and bonds, appealing in volatile markets.

Singapore TDSR restriction

Singapore's TDSR (Total Debt Servicing Ratio) limits the total monthly debt repayments.
No more than 55% of debt to the borrower's gross income, this rule to ensures and helps maintain financial stability in the property market.

Regulatory Growth in Distribution Platform

Frameworks like ASEAN CIS, ELTIF 2.0 in Europe, and changes in US retail access to alts are expanding the distribution of private credit products to non-institutional investors.
Feeder funds, interval funds, and semi-liquid structures are making private credit accessible beyond large institutions.

Why is Private Creative Attractive?

-- For Investors --

Higher Yields: Private credit offered attractive income (7–12%+)
Diversification: Different return/risk profile from public bonds or equities.
Downside Protection: Many private loans are senior secured and covenant-heavy.
Income-generating: Designed for predictable yield through interest payments, often at higher rates than public bonds. Investors hunted for yield as traditional fixed income yields were suppressed.