Odd Lots

Blackstone's Michael Zawadzki on How Private Credit Got so Big

January 23, 2026

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  • Private credit's massive growth is attributed to its efficiency, acting as a "farm-to-table model" that cuts out middlemen and brings borrowers directly to investors, resulting in better outcomes for all market participants. 
  • The scale of capital available to large players like Blackstone, evidenced by the surge in multi-billion dollar private credit deals since 2021, is the key enabler for solving large financing needs, such as the AI infrastructure buildout. 
  • The future of private credit will be characterized by increased dispersion among managers, where success depends on superior deal origination, portfolio management, and the ability to pivot across diverse credit opportunities beyond traditional direct lending, including investment-grade corporate solutions. 

Segments

Private Credit Growth Analogy (Unknown)
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Role of Scale in Private Credit (Unknown)
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Investment Grade Private Credit Focus
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(00:09:09)
  • Key Takeaway: Investment-grade private credit, often linked to AI and digital infrastructure buildout, offers investors 150 to 200 basis points of excess spread versus like-rated public credit.
  • Summary: Investment-grade private credit is identified as the fastest-growing opportunity within credit, driven significantly by the capital needs of digital infrastructure like data centers. Financing these assets often involves long-duration, take-or-pay contracts with top-tier hyperscalers as counterparties. This structure allows private credit lenders to capture significant excess spread compared to public investment-grade bonds.
Sourcing Deals and Competitive Dynamics
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(00:18:45)
  • Key Takeaway: In the private investment-grade and corporate solutions markets, demand for capital outstrips the supply of large-scale players like Blackstone, leading to attractive deal flow and excess spread.
  • Summary: While direct lending spreads have tightened, the private investment-grade market offers attractive relative excess spread (e.g., 250 basis points over public IG spreads of 80 basis points). Blackstone proactively sources deals by identifying thematic areas across the firm and pitching customized solutions, differentiating them from competitors who only react to inbound calls. Q4 deal pipeline activity was up 25% year-over-year, signaling optimism for recovery in deal flow.
Addressing Market Concerns and Dispersion
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(00:22:03)
  • Key Takeaway: Recent public credit blow-ups like Tricolor were bank-syndicated deals confused with private credit, and the industry’s 20-year data shows low realized losses (1%), though future performance will see greater dispersion.
  • Summary: The perceived risks from recent auto-related defaults were misattributed to private credit, as those were bank-led, public market situations where private-level due diligence was absent. Historically, private credit has outperformed liquid credit over 20 years with only a 1% realized loss ratio. Going forward, the asset class will likely see more dispersion, rewarding managers skilled at origination and portfolio management rather than experiencing systemic defaults absent a recession.
Insurance Capital and Private Credit Fit
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(00:43:03)
  • Key Takeaway: Insurers seek private credit because its safe, cash-paying, contractual assets perfectly match their long-duration liabilities, offering valuable excess spread over liquid alternatives.
  • Summary: Blackstone’s insurance business model focuses solely on acting as a third-party asset manager for insurance clients, avoiding competition with them. Life insurers and annuity providers require safe, contractual assets to match their long-term obligations, which private credit originates effectively. This strong fit drives demand, particularly for investment-grade private credit, which offers 150-200 basis points of excess spread.