Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Private Credit, Balance Sheets, and Financial Stability
Journal of Economic Perspectives
(pp. 95–114)
(Complimentary)
Abstract
Private credit has become an important source of business financing, raising questions about financial stability. We examine these questions using comprehensive fund- and asset-level data on private credit funds, the dominant form of private credit. Four facts emerge. First, private credit funds are primarily equity financed, with equity accounting for 65–80 percent of assets, compared with about 10 percent for US banks. Second, they engage in little maturity transformation: Fund lives span eight to twelve years, while underlying loans typically mature within two to four years. Third, portfolios are diversified across industries, geographies, and credit strategies. Fourth, equity investors have earned average net annualized returns of about 10 percent after fees, with equity cushions historically absorbing losses before creditors. These findings suggest that private credit funds do not currently replicate balance-sheet structures associated with banking fragility. We conclude by discussing potential vulnerabilities related to liquidity provision, valuation contagion, and loss transmission through investor balance sheets.Citation
Matvos, Gregor, Tomasz Piskorski, and Amit Seru. 2026. "Private Credit, Balance Sheets, and Financial Stability." Journal of Economic Perspectives 40 (4): 95–114. DOI: 10.1257/jep.20261498Additional Materials
JEL Classification
- E44 Financial Markets and the Macroeconomy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill