A Pioneer in Private Credit Warns the Industry Is Ruining Its Golden Era

Private credit is in a golden age.

- Miriam Gottfried

The biggest firms are marching further into bank territory, raking in money from insurance companies and individual investors and setting their sights on the trillions of dollars in U.S. retirement accounts.

But one of its pioneers thinks the industry is losing track of what made it great. Alan Waxman, CEO of investment firm Sixth Street, says publicly traded rivals such as Apollo Global Management and Blackstone have reoriented their credit businesses to take in huge sums of money from insurance companies and individual investors. That means money flows in and must be put to work quickly, whether or not the investment opportunity is ripe.

The 50-year-old Waxman, who in 2000 created one of the first private-lending businesses while at Goldman Sachs, isn't predicting this will end with a blowup. Instead, he argues these firms are turning private credit from a bespoke type of investing with relatively high returns into a commoditized, lower-returning business.

His rivals, Waxman says, have become factories, churning out deals with little consideration of their long-term prospects.

"What does a factory do?" he asked a room full of Sixth Street investors at the firm's annual meeting in October. "It's, 'I want to get as many widgets out the door as fast as possible, as cheap as possible...regardless of what the environment is.'"

Waxman's warnings come at a sensitive time. Some institutional investors are already starting to complain private credit isn't living up to its prior gains. And regulators are evaluating ways to make it easier for 401(k) investors to participate in private markets.