Traci Alloway

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So today we're at a point where the private credit market, there are all these different estimates for exactly how big it is.

And you're going to get some variation because it is private, like the clue is in the name.

But by most estimates, it's bigger than the junk-rated market, which is kind of crazy.

If you think about how large the junk-rated market has loomed in the market's collective consciousness for so long, how did we get to that particular point?

How did we get to a point where this like relatively new market, although I take the point that it has intellectual roots before even the financial crisis, but why did it grow so quickly after 2008?

I think there's two macro

influences that had a large play in that.

First, if you look back after the dot-com meltdown in the equity market, we had three straight years of negative returns in the S&P.

It was the first time that happened since the Great Depression.

The cumulative returns of high yield for that 20-year period, 1999 to 2019, beat equities.

So among investors, there is a desire for something away from the equity market.

Their experience in equities was unsatisfactory, so they were looking for other alternatives.

And then in the later part of that time period, we went through the zero interest rate environment where the Fed, Treasury, et cetera, drove interest rates to zero in response to COVID.

So there was a massive desire for yield.

and better performing assets than they had in the early parts of the 2000s in the equity market.

So that really led to the proliferation of the amount of dollars flowing into the product.

And then on the supply side, we touched on it earlier, these highly levered borrowers were basically shut out of the banking lending market

So they needed to find alternatives to fund their businesses and to refinance their debt.

So those two kind of came together at the same time and really fueled the growth of the product.