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FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A risk analyst at a pension fund is explaining to the investment committee how private credit differs from broadly syndicated leveraged loans. Which description best captures private credit as typically defined in the global drivers literature?

Private credit is lending by nonbank institutions, such as direct lending funds, negotiated privately with the borrower by one or a few lenders and typically held to maturity, with limited secondary trading. This distinguishes it from broadly syndicated loans and public bonds.

  1. ACredit extended by nonbank lenders such as direct lending funds to borrowers, usually negotiated bilaterally or with a small group of lenders and held rather than traded in liquid marketsCorrect
  2. BCredit extended by commercial banks that is immediately securitized and sold to retail investors through exchange-listed bonds
  3. CSovereign debt issued by governments to central banks under quantitative easing programs
  4. DShort-term interbank lending secured by government securities and cleared through a central counterparty

Explanation

Private credit is nonbank lending, usually bilateral or club-based, and generally illiquid and held to maturity. Syndicated loans and bonds are broadly distributed and traded. The other options describe bank securitization, QE holdings and repo, which are not private credit.

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