Private credit is now a mainstream source of financing, fueling growth for small, medium, and large enterprises worldwide across a wide range of sectors. Per Preqin, the number of private debt funds reached a historic high of 389 at the end of Q2 2018.

How does a borrower’s bad debt become an investor’s good fortune? Many hedge funds and hybrid funds acquire loans that have gone into default at a deep discount, essentially betting that the borrowers will be able to resume payments in the future and the loans will regain their full value.