Private Credit as a Structural Allocation

Abstract

Private credit is often explained as the byproduct of post–global financial crisis bank retrenchment. That account is incomplete. If the asset class were merely a cyclical substitute for bank lending, institutional allocations would have normalized as conditions changed. Instead, capital has deepened its exposure across market environments. This paper argues that private credit has become a structural allocation because it has transitioned from episodic deployment into permanent capital—supported by durable manager platforms, repeat deployment expectations, and ongoing borrower and sponsor relationships.

As private credit becomes permanent, performance depends less on opportunistic entry points and more on governance practices that can be sustained across cycles. The institutionalization of the asset class shifts the primary source of advantage from market timing to organizational capability: underwriting discipline, portfolio construction, workout capacity, valuation and reporting controls, conflicts management, and LP oversight mechanisms. The paper outlines the implications for allocators, managers, and governance bodies—especially where private credit sits inside multi-asset portfolios alongside public credit and private equity.

Key Implications

• Private credit has transitioned from a cyclical opportunity to a permanent institutional allocation driven by governance and organizational capability.
• Long-term outcomes in private credit are determined more by underwriting discipline, portfolio construction, and oversight systems than by entry timing.
• As private credit scales, governance quality becomes the primary differentiator between resilient performance and hidden risk accumulation.
• Treating private credit as episodic capital misdiagnoses its structural role within institutional portfolios.

Keywords

Private credit; institutional investors; capital allocation; governance design; covenant enforcement; control without ownership; non-bank credit intermediation; fiduciary oversight; credit cycles; real-world assets

Recommended citation: Sing, C. H. (2023). Private Credit as a Structural Allocation: Why Institutional Capital Treats Private Credit as Permanent, Governance-Intensive Exposure. Working paper.
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