Hamilton Lane Executive Defends Private Credit Industry Against Regulatory Fears
Erik Hirsch, co-chief executive of investment firm Hamilton Lane, has forcefully pushed back against what he describes as a "witch hunt mentality" surrounding the rapidly growing private credit industry. During a recent visit to London, Hirsch told City AM that regulatory concerns about this sector potentially triggering another financial crisis are both overblown and misguided.
The 'Private' Problem: Perception Versus Reality
"The biggest issue with our industry is the word private because it makes things scary," Hirsch explained. "But if you look at the vast swaths of data available to the general public, we can see bankruptcy rates are sitting below two percent and dropping, and equity coverage is rising."
Hirsch leads a firm responsible for screening, recommending, and monitoring over $860 billion in private market investments, giving him access to one of the world's largest databases on alternative investments. Hamilton Lane's clients can examine information on more than 178,000 portfolio companies and track records spanning 68,000 private equity, credit, and other funds across six decades.
Regulatory Concerns and Industry Growth
Private credit operates similarly to private equity by investing in unlisted companies over five- to ten-year timeframes, but instead of taking equity stakes, these funds provide loans as traditional banks would. The industry has experienced explosive growth since the 2008 financial crisis, filling a lending gap created when regulators imposed stricter rules on traditional banks.
This expansion has drawn intense scrutiny from financial authorities worldwide. International Monetary Fund managing director Kristalina Georgieva has said the private credit industry keeps her "awake at night," while Bank of England governor Andrew Bailey has warned that some lenders are engaging in the kind of "slicing and dicing" of credit last seen before the 2008 crisis.
European Central Bank president Christine Lagarde has branded private credit a "darker corner" of finance requiring greater regulatory oversight. These concerns intensified in late 2025 when three firms linked to the industry collapsed within months: car parts maker First Brands and subprime lenders Tricolor Holdings and Primalend.
Hirsch's Counterarguments and Data Perspective
From his "high perch" overseeing massive private market data, Hirsch gives short shrift to suggestions that these failures signal wider systemic problems. "I don't see bad lending practices," he stated. "I don't see undue risk-taking that is systemic. Now, could we find a bad actor? Sure, because there's lots and lots and lots of actors."
The Hamilton Lane executive draws a crucial distinction between private credit funds and traditional banks regarding contagion risk. Unlike bank depositors who can withdraw funds instantly, creating liquidity crises that spread rapidly, investors in private credit funds are locked in for longer periods. While they may suffer losses from specific fund failures, Hirsch argues these are unlikely to morph into full-blown financial crises.
The Retail Investor Question and Regulatory Response
A newer concern for regulators involves private credit's increasing accessibility to retail investors through "tokenised" funds that allow trading stakes as if on an exchange. The Bank of England's Financial Services Regulation Committee recently warned about this trend, suggesting it could expose the sector to rapid market sell-offs due to information scarcity.
Hirsch, whose firm is at the forefront of this retail push, believes investors have proven more discerning than regulators acknowledge. "People were worried that [retail investors] are all going to do this, or they're all going to do that at the same time," he noted. "I'm saying to people loudly, this is a more sophisticated group than I think we give them credit for."
Political Dynamics and Industry Defense
The American executive expressed concern that nuanced arguments about private credit's actual risks are being lost amid "breathless talk of looming debt crises and financial blow-ups." He worries regulators might focus on "eye-catching but ultimately misguided noise" rather than substantive issues.
"When I see politicians getting involved, usually, what I hear on the credit side is we're sort of looking for the boogeyman that they're not really sure exists, but they think exists and has to be there," Hirsch observed. "That's not regulation – that's a sort of weird witch hunt mentality."
Interestingly, Hirsch suggests observers have drawn wrong conclusions from the three high-profile collapses that sparked regulatory concerns. With a knowing smile, he noted: "It was just three things that happened in a row. And ultimately they were all predominantly financed by banks."
As private credit continues expanding beyond its traditional institutional investor base, the debate between industry proponents like Hirsch and cautious regulators appears destined to intensify. The Hamilton Lane co-CEO's central message remains clear: available data doesn't support apocalyptic predictions about private credit's systemic risks, and regulatory responses should focus on facts rather than fears.
