Private Credit: The Original Impact Investment?

Prior to 2010, allocations to private credit in endowment or high worth client portfolios were rare. Today, strategies under this umbrella exceed $1.2 trillion in assets under management (AUM). Many average investors now have exposure through Business Development Companies, 1940 Act interval funds, and or recently developed private vehicles managed by Wall Street firms such as the Blackstone Group and Starwood Capital Group.

Rapid AUM growth in recent years suggests the embrace of private credit is in its early chapters. AUM expansion in Europe and Asia, for example, is now outpacing North America. Given over half of current AUM is based in North America, the potential globally is substantial.

Private credit’s formal inception is widely considered to be the creation of the U.S. high-yield market in the late 1970s and early 1980s. What is less known, however, is that there was simultaneously a very different origin story developing in private credit on the other side of the world.

The Renter’s Dilemma

The National Low Income Housing Coalition (NLIHC) estimates there is a shortage of at least 7 million affordable housing units in the U.S. today. There is no single definition for affordable housing, but a rule of thumb in law and practice is affordable housing must have rents at no more than 60% of area medium income (“AMI”). Families or individuals that earn income below the relevant threshold are most likely to qualify for housing assistance. The lack of affordable housing compounds other social challenges in predictable and unforeseen ways.

Affordable Housing Overview

Access to safe and affordable housing is a foundational component of any society. Each and every day, thousands of families are on the search for a suitable place to live. It may be a small urban apartment, a midsized suburban tract home, or a rural ‘McMansion’, but every searcher is looking for a place to call home and to find rest from the stresses of everyday life without becoming burdened with cost.

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