In this episode of Excess Returns, we sit down with Larry Swedroe to break down one of the most debated topics in markets today: private credit. Larry walks through what private credit actually is, why it has grown so rapidly since 2008, and where he believes the biggest misconceptions and risks are for investors.We dig into the structure of the market, how liquidity and credit risk really work beneath the surface, and why the media narrative around private credit may be overstating systemic risks. We also explore how investors should think about diversification, illiquidity premiums, and the potential impact of AI on credit markets and software lending.Larry Swedroe Twitterhttps://twitter.com/larryswedroeLarry Swedroe Substackhttps://larryswedroe.substack.comTopics coveredWhat private credit is and how it evolved after the 2008 financial crisisWhy private credit is not a single asset class and how risk varies across structuresThe three key risks in private credit: credit risk, liquidity risk, and concentration riskHow illiquidity premiums work and why they can be a major source of returnDifferences between private credit funds, BDCs, and open architecture platformsWhy diversification is critical and how concentration risk can be hiddenHow rising interest rates are impacting defaults and underwriting standardsMedia misconceptions around defaults, losses, and valuation marks in private creditThe real systemic risk of private credit vs the banking systemHow liquidity actually works in interval funds and stress scenariosWhat happens in a recession and how private credit compares to equities and high yield bondsThe role of software lending and how AI disruption could impact credit portfoliosHow to evaluate private credit managers including scale, underwriting, and leverageThe importance of credit culture and avoiding “reach for yield” behaviorWhether private credit should be accessible to retail investors and the risks involvedThe concept of earning “beta” in private credit vs trying to pick winning managersAI’s growing role in investment research and the risks of overfitting and false signalsTimestamps00:00 Why private credit is less risky than banks for systemic stability01:12 Introduction and episode overview03:00 What private credit is and how it grew after 200805:21 Who provides capital to private credit funds07:11 Why private credit is not a monolithic asset class08:00 The three key risks in private credit09:00 Illiquidity premium and why it can be a “near free lunch”12:00 Credit risk and importance of senior secured lending16:00 Concentration risk and why diversification matters18:11 Are defaults rising and what the data actually shows21:00 Media narratives vs actual credit losses23:50 Could private credit cause a financial crisis25:50 How to analyze portfolios and why most investors can’t28:44 Should investors think about indexing private credit30:12 Can private credit work for retail investors32:26 Mass redemption risk and liquidity stress scenarios36:00 Sources of liquidity inside private credit funds41:37 Software lending and AI disruption risk47:00 Private equity valuations and spillover into credit risk49:43 Key checklist for evaluating private credit investments56:30 How AI is changing financial research and investing