Private credit is one of the fastest growing areas of alternative investments today, growing from $200 billion in 2007 to nearly $800 billion today, according to Preqin estimates. A Preqin survey notes that one-third of institutional investors now have an allocation to private debt averaging 6.3 percent, with 32 percent of investors seeking to increase their allocation in 2020.

What has contributed to this explosive growth and how can investors approach this space? There are three main strategies within the private credit universe: mezzanine, distressed and direct lending. Much of the growth in the past decade has come from direct lending. Following the 2008 global financial crisis, governments worldwide were concerned about a repeat of this scenario and, in an attempt to avoid another series of bank bailouts, enacted regulations such as Dodd-Frank in the United States and Basel III in Europe to reduce risk in the banking system. As a result of increased loan capital charges,