The Growth of Private Lending and Retail Access to Alternative Investments

Private lending has exploded over the past two decades.To explore its rise, we focus on Business Development Companies (BDCs).We show that their growth is intimately connected to growth in private equity.Many BDCs are directly connected to large private equity organizations, and their compensation structures mirror those in private equity.BDCs not only provide debt for PEsponsored deals, they make PE-like investments themselves involving deferred interest, preferred equity, and exposure to underlying assets.Understanding private lending's connections to private equity is especially salient for the rapidly growing retail investor segment and has important implications for regulation.