As regional banks face turmoil, non-bank lenders such as asset managers, private equity (PE) funds and insurers are stepping in to fill the gap. These investors have deep pockets and are investing in credit assets such as consumer car loans, mortgages, and financing the construction of buildings. Goldman Sachs Asset Management’s alternative investments business is also seeing potential growth in areas such as auto lending, SME and consumer lending, and fund financing.
PE firms such as Ares Management Corp, Brookfield Asset Management and KKR are lending in areas traditionally dominated by banks. KKR is even financing $550 million of loans for homeowners buying solar panels from SunPower. Investors providing private credit comprise 12% of the $6.3 trillion U.S. commercial credit market, according to Fitch Ratings.
The Federal Reserve has said that while private credit funds have grown swiftly, the risks they pose to the financial system appear limited. However, the International Monetary Fund has warned that the expansion of private credit may have added vulnerabilities to the financial system and called for more supervision of non-banks.
PE executives reject this criticism, saying that private credit is very transparent and investors have access to detailed information about the loans in their portfolios. With loan terms tougher and tighter, the option for private credit providers is on steroids, according to Drew Schardt, head of investment strategy at Hamilton Lane.