Weekend Edition: Going Private
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What exactly is private credit and how does it differ from traditional bank loans?
Private credit, what is it? Why is it so appealing to investors? And how long can it keep growing for? That's this week. The morning call from NAB with Phil Dobby, the weekend edition. So when I type private credit into my favorite AI engine, it says it's a rapidly growing market worth somewhere between, and this is a fairly broad gap, somewhere between 1.6 and 3.5 trillion US dollars. Well let's see if we can get a more reliable number than that. And also a deeper understanding of what private credit actually is. Brad Kalasia is uh executive corporate finance at NAB. So in a nutshell, I mean this is investors lending money down to companies, isn't it? It's almost like a bank loan, except it's not a bank.
I mean, is that it?
Who are the non‑bank lenders and institutional investors that provide private credit?
Yeah, really what private credit refers to is privately negotiated loans between a borrower, institutional borrower typically, and a non-bank lender. So, you know, it's um that can be you know direct lending or part of a syndicate of lenders, but really it's just it's just a privately negotiated loan. And it's and it's from a non-bank. And so Well, when we talk about non banks, you know, we we're sort of talking about sort of superannuation funds, we're talking about insurance funds, sovereign wealth funds, and you know, high net worth investors. So they're they're the end investors. And typically they would sort of um they can go direct, but more typically, um They would sort of um provide a mandate to a specialist uh credit asset manager.
Um, and those asset managers would typically have a specialization in you know commercial real estate, you know, leverage finance, infrastructure, energy, commodities, uh that have a specialization so they can uh these end investors can give some capital to those specialists to invest in in large.
But those companies, if they wanted to, if they wanted to raise money, I mean they could uh issue bonds, couldn't they, make them available on the public markets.
Why do companies choose private credit over public bonds or bank financing?
Why have they ch Why did do they choose to go down this private road?
The bond market typically re requires a rating, and there's a certain size of company that can access that capital. Private credit is much more flexible. And they're typically sort of not traded in secondary markets or publicly rated. The lenders in this area sort of tend to hold the loans to maturity. It's not a traded market. It's a very illiquid market. That actually presents a challenge also. And so sort of that's really sort of it's just that more flexible, um that more flexible sort of capital are the people looking for. Typically also private credit sort of tends to sort of operate in in a higher risk uh area of the market where banks uh can't operate or or are sort of Incentivized not to operate.
And so that's um that's another sort of nature of that's another sort of So
that was going to be one of my questions actually, is it filling a gap that perhaps in the past might have been filled by banks? Is that why we're seeing this growth in in in private credit?
How large is the global private credit market and what are the estimates from the IMF and consultants?
Is it an area where banks used to be more dominant?
Look, there's there's a coup there's a couple of drivers for the growth. I mean, uh if we sort of take a step back, you know, the the IMF, just in terms of the size of this market, you started by talking about the size of this market and the various estimates. Um what's the figure you've got? Well, you know, the the the the thing about this market is it i it is relatively opaque. It's a private market. Effectively you've got various estimates from the IMF, uh various international consultants, the RBA. et cetera. But the IMF uh put a number on it at 2.1 trillion uh earlier this year. Um what what we know about that in terms of size is that um yeah it it is it has sort of quadrupled over the past decade.
So um yeah so w whatever the sort of in number is and and look you know got IMF at 2 trillion and then you've got an international consulting firm like Oliver Wyman
How have bank regulation and balance‑sheet constraints created space for private credit?
They're suggesting that the number could be closer to three trillion. But it's but
it's whatever it is,
it's growing though.
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Chapters
8 chapters
1
What exactly is private credit and how does it differ from traditional bank loans?
0:01–0:44
2
Who are the non‑bank lenders and institutional investors that provide private credit?
0:44–2:00
3
Why do companies choose private credit over public bonds or bank financing?
2:00–3:06
4
How large is the global private credit market and what are the estimates from the IMF and consultants?
3:06–3:59
5
How have bank regulation and balance‑sheet constraints created space for private credit?
3:59–4:53
6
What return profiles and inflation‑hedge benefits does private credit offer investors?
4:53–6:42
7
How does NAB work with private credit funds to distribute loan assets and manage its balance sheet?
6:42–12:22
8
Is private credit replacing bank lending or complementing it, and what’s the future outlook?
12:22–22:07