Is my bookie a Private Credit fund? Does he see me as a risk? Is a systemic failure happening?

Saturday's TV racing

I can talk reasonably knowledgeably about running a restaurant, the perils of sectarian conflict, problems with Bluetooth signals, and, if pushed, compare Watts, Wesley, Luther, and Bach to suggest who might be considered the most impactful on the development of church music.

But the other day, I was listening to a chum who was expressing some angst about the private equity market, then something about packaging, and something about specialised debt funds. At least I think that’s what he said. In terms of my understanding of his fears, he might as well have declaimed, “Blue Cheese production is only sustainable in Bahraini-operated barometric pressure chambers”, in Serbo-Croatian.

I nodded sagely, swerved the port, and changed the subject by asking whether he had been watching Strictly Come Dancing, which I rather think disappointed him. The reality is that I, like vast swathes of the general population, haven't a Scooby about the economic games that are played with what, in the end, is our money. I only fully (OK, call it 20%) understood the Subprime crash of 2008 after I saw The Big Short, one of the best “money” films ever made.

Inevitably, the enquiring rabbit hole beckoned. What is Private Credit, and should I be concerned for my chum… or me, or even you, gentle reader? So, because I am curious and want to understand, I have to try to explain it to you, so we can all feel better. Or more confused.

I think this is what people are talking about… Bill runs a large Pension Fund. His job, bonuses, reputation and holidays depend on him consistently producing better returns for the pension fund than if he stuck the funds in the bank. Ben runs Ben’s Asset Management Company. Bill invests money with Ben because Ben promises to improve the bank’s rates, Ben is also looking for investments that will generate a better return than the bank, the market, or used-car dealing. He finds the Little Weed AI development corporation, who want funds to expand. Ben does a deal with Little Weed and, by way of example, gets a 8½% rate and takes 30% of the equity. You, Joe Schmo, can’t buy shares in any of the people involved. That is Private Credit (aka direct lending or private debt), the fastest-growing segment of the finance market. You will note that [a] the deals are negotiated privately between the lender and borrower, [b] the loans are usually not traded on public exchanges, and [c] the lenders are not subject to normal banking regulations.

Over the past five years,