Private credit. A force for good, or just misunderstood? 

Sixty years ago, this month, a young British group on the rise travelled to New York to appear on the highly influential Ed Sullivan Show to play their latest single. No, not The Beatles, but The Animals. The band’s cover of Nina Simone’s Don’t Let Me Be Misunderstood became an overnight sensation.  

Its plaintive cry: “I’m just a soul whose intentions are good, oh Lord, please don’t let me be misunderstood.” 

Now, I can’t quite imagine private capital titans like Mark Rowan or Michael Arougheti pleading so in the face of mounting criticism. With explosive growth of the private credit market by 300% in just 10 years, why should they? But they need only look to the experience of their private equity businesses to understand the importance of ensuring their intentions are seen as good, and that they are not misunderstood. 

Addressing concerns about opacity is not just a matter of good PR and reputation management; it’s essential for unlocking private credit’s full potential, particularly at a time of significant need for private investment into high-scrutiny areas like infrastructure, and to gain the trust of a broader range of investors.  

A two-sided story: opportunity and scrutiny 

For those driving this rapid evolution in finance, there’s much to be encouraged by. Post-GFC regulation has allowed private credit providers to fill critical funding gaps, helping banks de-risk, funding infrastructure and growth businesses, and offering corporates and sponsors new lending solutions, with added benefits including speed of execution, greater flexibility and capacity for follow-on capital. 

This evolution has arguably created a healthier, more diversified financial system. Long-term investors, such as pension funds, now play a greater role, reducing over-reliance on short-term bank deposits, which is an important way to minimise financial market instability. For institutional investors, private credit offers diversification, attractive risk-adjusted returns, and welcome steadiness with regular, predictable income.  

But greater scale brings greater scrutiny. Recently, regulators, industry watchers and some media commentators have raised concerns about oversight of the private credit market, its transparency, and whether some financial structures are overly complex. Even if some of this criticism isn’t merited, the noise it creates can erode trust in the sector.  

Crucially, if private credit fails to address these concerns, it risks facing increased political scrutiny and possible regulatory intervention, limiting its growth potential and hindering its ability to attract a wider range of investors. 

Historically, many private credit managers have adopted a defensive posture, or chosen not to engage proactively with media, which echoes the ‘old-school’ approach that many private equity firms took, until recently. But private equity’s PR journey is a valuable case study, and many firms now appreciate that being more transparent about performance and how they support businesses is essential to earn the trust of a wider group of stakeholders.

Private credit: the bigger picture 

Where communication cuts through to a wider audience, it often focuses on scale and growth – In other words, profit potential. Instead, the focus should be on how the sector benefits clients, businesses and promotes broader financial market stability, and taxpayers. 

A compelling private credit narrative should highlight it’s tangible contributions: funding businesses that the banks can’t, providing vital growth capital, de-risking the financial system, and delivering stable returns to pensioners.  

To resonate, private credit must also embrace openness, humility, and active listening. Enhanced transparency around portfolio holdings, governance, and risk management is essential. Addressing concerns about complex structures is equally vital. Demonstrating a willingness to listen significantly improves perceptions.  

And when misinformation arises – like those doomsday predictions of portfolio blowups post Covid, or rising interest rates – setting the record straight and communicating the positive role that private credit can play is crucial. 

Who’s responsible for being misunderstood? 

Private credit might not be the systemic risk some fear – but perceptions matter. As the asset class is still relatively young and continues to grow, it has a chance to better influence these perceptions. At a time when private capital firms are diversifying towards private wealth channels to fund their growth, credit, if understood, is well-placed to take advantage of this compared to other asset classes.  

But the sector would do well to act now.  

Unlike the pop kings of 60 years ago, private credit can’t afford to leave it to others, or even the Almighty, not to be misunderstood. That’s a job for the industry. 

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