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1. Overview of Private Credit

In regulatory and academic literature, “private debt” and “private credit” are often used interchangeably, referring to debt instruments not traded on public markets and typically arranged through private negotiations. These instruments are primarily initiated by non-bank financial institutions (e.g., private credit funds, insurance companies, pension funds, and hedge funds), though banks may also participate in certain cases. Their core function is to raise funds for companies or specific projects. Over the past decade, its assets under management (AUM) growth has been among the fastest within alternative assets. Compared with bank loans and publicly traded bonds, private credit offers higher interest rates and more flexible structures, though at the cost of lower transparency and liquidity. Consequently, this is why investors often view it as a “high-risk, high-return” asset allocation option.

As of 2024–2025, the AUM of global private credit stands at roughly $2 trillion, with institutional forecasts, such as Moody’s, projecting that it could reach $3 trillion by 2028 (see the forecast by Moody’s below). This rapid growth over the past decade is driven by two key factors: first, post-financial crisis capital regulations constrained bank balance-sheet lending, pushing financing needs toward non-bank financing channels; second, the persistent financing gap for micro, small, and medium-sized enterprises ( MSMEs), estimated by the IFC at $5.2–5.7 trillion annually), has fueled the expansion of direct lending and asset-backed financing as forms of off-balance-sheet credit. Mainstream strategies, such as mature direct lending, often target or achieve annualized yields of around 8%–12%. In niches like emerging markets or trade finance, yields may reach double digits, though with higher risk and greater diversification requirements.