Gareth Henry on Private Credit and The Global Economy

Private Credit is one of the greatest forces that impacts the economy throughout the world today. Gareth Henry says that the 2008 financial crisis provides one of the best arguments that one could make for this. This was a period that is widely considered to be the worst financial crisis since the one known as the Great Depression in the 1930s. During this period, stocks that were being traded publicly fell nearly a thousand points in a single day thanks to investor panic. Gareth Henry states that at it’s worst, the crisis essentially froze public debt markets. Two of the biggest names on Wall Street, the Lehman Brothers and Bear Stearns became completely insolvent. Direct lending is one of the largest drivers of private credit in the global economy today and is growing rapidly.

Gareth Henry states that within the space of private credit, direct lending funds and their rise has been notable. In a recent Preqin report, direct lending was responsible for the second largest share and is close to taking the top spot. Direct lending, according to Gareth Henry works like old fashioned bank lending, without a bank. It’s beginning came to start with asset managers. These managers work with pitches from debt advisers and view them as investment opportunities. They hold onto loans long term and attempt to offer growth support and enter into multiple funding rounds, with some funds selling a small proportion of the debt.

With such popular websites like Lending Tree and LowerMyBills a lot of consumers have familiarized themselves with direct lending. US Households are gripped with over 1$ trillion in installment debt and has credit card debt of more than 6300$. According to Gareth Henry, these direct lenders manage to compete effectively by using credit scoring algorithms that provide a more accurate picture of what true credit default risk looks like. With this, it results in lower rates and lower monthly payments for borrowers. This combination is one that proves to be winning for those who use these services.

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