Private Equity Firms? More Like Private Debt Providers

They are called private equity firms, but lately, private debt providers would be a more apt description. The likes of Blackstone and TPG are refocusing their strategies to lending from equity investments.

“These asset managers, most of which were founded on the soil of leveraged buyouts, increasingly tie their asset growth to credit investments,” according to a PitchBook report.

The seven largest publicly traded PE firms—Ares Management, Apollo Global Management, Blackstone, Blue Owl, Carlyle Group, KKR and TPG—lent $121.1 billion to private borrowers in 2024’s second quarter, research firm PitchBook found. That dwarfs the $11.3 billion they laid out for private equity in that period.

The leader of this group is Apollo, with Q2 2024 lending of $52 billion, more than double that of the year-prior quarter. In this year’s Q2, Apollo made just $200 million in PE investments, according to PitchBook

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Lending by non-bank organizations is growing fast and should hit $2.8 trillion by 2028, well beyond the $1.5 trillion total at the end of 2022 and a huge advance from $300 billion in 2010, data provider Preqin reported.

This relatively new asset class, which focuses on lending to small and midsize companies, took off following the global financial crisis. Congress and regulators discouraged bank lending to all but the best credit risks, meaning larger businesses. In addition to corporate loans, private credit providers are now lending for commercial mortgages, equipment leasing and even companies in bankruptcy proceedings.

Also boosting private debt, PitchBook reported, is greater attention to the category from insurance companies, which are hungry for capital to fuel their investments in asset-backed securities such as auto loans and mortgages.

“Private credit is redefined to be a much broader scope of activity” than private equity, observed Tim Clarke, PitchBook’s lead PE analyst, quoted in the report. “That’s why it’s so much bigger, and the private equity business is starting to look small by comparison.”

The report also quoted Patrick Davitt, an analyst at Autonomous Research, explaining that allocators seek to replace their customary fixed-income investments, such as Treasury or corporate bonds, with debt offerings that are low risk and also have illiquidity premiums—that is, they carry high yields because they are hard to trade.

Amid a dry season for initial public offerings and enticed by high and floating loan rates (often north of 10%), PE firm have piled into private credit. For PE firms’ usual equity investments into companies, the payoff may be years away, if ever. But private credit delivers lush interest regularly.