Private Debt: An Introduction

Since the global financial crisis (GFC), institutional investors have increasingly included private debt in their broader portfolios. Private debt refers to loans made to companies by nonbank lenders, like asset management firms, pension and insurance funds, hedge funds, or dedicated private capital funds. This note introduces the types of private debt and the drivers of its growth, describes its rise as a result of regulatory changes after the GFC that limit banks’ ability to lend, relates it to the concurrent rise of the private equity industry, and discusses its risks. In the University of Virginia Darden School of Business, this note is taught in the second-year elective, “Financial Institutions and Markets,” along with the case “Private Debt and a University’s Endowment Portfolio Decision” (UVA-F-2108). It can also be used in a course on private capital, private markets, investments, asset management, or private wealth.