Private Credit Rapidly Capturing Main Street, Hamilton Lane CEO Says

In Brief:

Private credit has systematically displaced traditional banks as the primary source of growth capital for mid-market businesses across America, fundamentally altering how companies access financing and creating a massive new asset class worth trillions of dollars. This transformation represents one of the most significant shifts in business lending since the banking deregulation of the 1980s, with private credit firms now providing the loans that regional banks once handled through personal relationships with local business owners. Erik Hirsch, co-CEO of Hamilton Lane, which manages nearly $1 trillion in private assets, detailed this credit revolution and its implications for both borrowers and investors on Bloomberg's Masters in Business podcast with Barry Ritholtz. With three decades at Hamilton Lane, Hirsch has witnessed private credit evolve from a niche strategy to a dominant force that's reshaping corporate finance while creating new opportunities for institutional and retail investors seeking higher yields in a low-rate environment.

Big Picture Drivers:

• Banking Void: Regional and large banks retreated from mid-market lending due to increased regulation and focus on larger deals, creating massive opportunity for private credit

• Retail Invasion: Individual investors gaining access to private credit strategies historically reserved for institutions, potentially bringing trillions in new capital

• Technology Revolution: Tokenization and blockchain infrastructure promising to eliminate friction and create liquidity in traditionally illiquid credit investments

• Performance Premium: Private credit delivering consistent outperformance versus traditional fixed income while providing portfolio diversification benefits

Key Topics Covered:

• Market Displacement: How private credit systematically replaced traditional bank lending for middle-market business expansion and acquisition financing

• Borrower Benefits: Private credit firms providing more programmatic and efficient lending solutions compared to relationship-based bank lending

• Investor Access: Democratization of private credit investing through new product structures and reduced minimum investments for individual investors

• Liquidity Innovation: Tokenization technology creating potential secondary markets for private credit investments traditionally held to maturity

Key Insights:

• Banking Evolution: The shift from local bank managers personally knowing business owners to programmatic private credit lending represents a fundamental change in how American businesses access growth capital, with private credit firms now dominating mid-market financing.

• Scale Opportunity: Despite explosive growth, private credit remains a relatively small portion of total credit markets, suggesting enormous runway for continued expansion as more investors discover the asset class.

• Performance Persistence: Unlike predictions that private credit returns would compress as the market matured, performance dispersion remains wide because success depends on fundamental underwriting skills rather than just capital availability.

• Retail Transformation: The emergence of individual investors in private credit will force industry consolidation as only firms with substantial technology infrastructure and scale will effectively serve this demanding new client base.

• Liquidity Premium Evolution: Tokenization could fundamentally alter the illiquidity premium that has historically driven private credit returns by creating secondary trading exchanges for credit investments.

• Regulatory Impact: Current political uncertainty around tariffs and trade policies is creating pricing challenges for private credit investments, leading to slower deal volume as buyers and sellers wait for clarity on policy impacts.

Memorable Quotes:

• "Private credit has really taken over from banks, particularly regional banks as well as large banks in being the primary provider of lending capital to businesses" - Erik Hirsch, explaining the fundamental shift in business lending markets

• "If we had gone back into the 80s or 90s or even in the 2000s and you were a local business owner that had a small factory and a town in the Midwest US and you wanted to expand... you would have probably gotten in your car and driven down to your local bank where you knew the bank manager" - Erik Hirsch, contrasting traditional relationship banking with today's private credit landscape

• "Private credit has really taken that over in a much more sort of programmatic way" - Erik Hirsch, describing how private credit firms have systematized business lending

• "The private credit firms have frankly just done a better job of making that an asset class and making that both accessible to borrower and lender" - Erik Hirsch, explaining why private credit succeeded where banks struggled

• "You can't expect that individual investor who has been so trained and has adopted that frictionless environment for their entire portfolio and now to say to them well for 5% of your portfolio, it's going to be a gigantic pain in the rear" - Erik Hirsch, on why technology transformation is essential for retail adoption of private credit

The Wrap:

The conversation reveals private credit's evolution from a niche alternative investment to a dominant force in business lending, representing one of the most significant financial market shifts of the past two decades. Hirsch's perspective suggests that while private credit has achieved remarkable growth by filling the void left by retreating banks, its biggest expansion phase may still lie ahead as retail investors gain access and tokenization removes traditional barriers. However, this evolution will likely create winners and losers among private credit managers, with technology-enabled firms gaining significant advantages in serving the new generation of individual investors who expect the same frictionless experience they receive in public markets.