If private credit has started showing up more often in financial headlines, portfolio discussions, or even conversations with friends, there’s a good reason: It has become a key part of modern investing.But if you’re thinking “I kind of know what that means, but not really,” you’re in good company. Private credit sounds simple enough, but it refers to a wide range of lending activity. Recent headlines haven’t always made it easier to separate what matters from what’s just noise.Let’s break it down: private credit is lending that happens outside traditional banks and outside public markets. Instead of borrowing through a publicly traded bond or a typical bank loan, companies borrow from private lenders — often investment firms, funds, or other nonbank institutions.Even if you never invest directly in private credit, the asset class is reshaping how capital flows through the economy — and offering a real-time lesson in one of investing’s oldest truths: When an opportunity grows quickly, selectivity matters even more.

Why private credit is so popular

The growth of private credit is a story about supply and demand.

Private credit has long been a part of the capital markets landscape — business development companies (BDCs), direct lending, and securitized financing all existed well before 2008, and in many cases performed well through the global financial crisis (GFC). But the post-GFC pullback by banks accelerated private credit's growth significantly, attracting a broader set of investors looking for income, diversification, and access to opportunities that don’t always exist in public markets.

For investors, the appeal was easy to understand. Private credit can offer:

1. Higher yields than traditional fixed income
2. A potential source of portfolio diversification
3. Exposure to parts of the economy not always accessible through public bonds or equities

That combination helped fuel enormous growth — but rapid growth can be a double-edged sword.

As more money flowed into the private credit space, competition intensified. And when too much capital chases too few attractive deals, lenders can start accepting weaker protections, lower spreads, or riskier borrowers just to keep deploying money. That dynamic is at the center of why private credit has come under greater scrutiny.

Why private credit is in the headlines now

The recent wave of attention around private credit has been driven by a few overlapping concerns:

• A handful of high-profile credit events and bankruptcies raised new questions about underwriting discipline leaving some to wonder if lenders were too aggressive about who they lent to and on what terms
• Investors became increasingly focused on software exposure, especially in portfolios tied to direct lending and BDCs. As markets reassessed the long-term impact of AI on certain software business models, lenders with meaningful software exposure came under pressure.
• There has been a lot of discussion around redemption limits at some private vehicles. For newer investors, that can sound alarming — as if a fund is suddenly locking the doors. But the more nuanced reality is that these limits are typically built into the structure of private credit funds from the beginning. They are designed to protect investors by preventing disorderly exits in a less liquid market.

That distinction matters. Not every headline is evidence of systemic stress. Sometimes it’s simply evidence that the structure is functioning as intended. As BBH Partner and Chief Investment Strategist Scott Clemons always says, this is “a feature of the markets, not a bug.”

Not all private credit is the same.

One of the biggest mistakes in discussing private credit is treating it like a single, uniform market. Private credit spans a broad universe of lending activity. For perspective, about $17 trillion of nonbank loans are outstanding in the U.S. today — only about $1.5 trillion of that is direct lending. Even within direct lending, quality can vary significantly depending on the manager, the structure of the loan, the type of borrower, and the discipline of the underwriting process.

At BBH, we see this breadth as an opportunity. We are highly selective when investing in traditional direct lending as parts of the market have become crowded and competitive. In addition, we also find selective and compelling value across other segments of private credit, including attractive asset-backed lending, multifamily-backed debt, and other durable corners of the market. Recent headlines are concentrated in specific segments, not the broader nonbank lending universe.

A fast-growing market can offer attractive opportunities. But investors need to be discerning about where they take risks, how much protection they have, and whether the return on investment is enough for the uncertainty involved.

What investors are watching beneath the surface

When investors evaluate private credit, they are not just asking whether a borrower can make it through the next quarter. They are looking at the overall quality of the lending environment.

A few signals to look for: