Private Credit Is Not a Bubble: Insights from Lawrence Golub on Direct Lending’s Value in Modern Portfolios

In an era where traditional investment strategies face unprecedented challenges, Lawrence Golub, the billionaire founder and CEO of Golub Capital, offered a compelling defense of private credit at the Forbes/SHOOK Top Advisor Summit in Las Vegas. Speaking to a room filled with financial advisors, Golub emphatically rejected the notion that direct lending represents a market bubble, despite recent high-profile bankruptcies like Ohio auto parts conglomerate First Brands that have raised concerns. “It’s for sure not a bubble,” Golub stated confidently, arguing instead that private credit serves as a valuable diversification tool that enhances traditional portfolio construction. With approximately $80 billion under management, Golub’s firm has evolved significantly since its 1994 founding as a buyout firm, pivoting to lending after the 2000 dotcom crash and establishing itself as a major player in the middle-market lending space where competition remains relatively modest compared to larger market segments.

The timing of Golub’s defense is particularly noteworthy, coming amid growing scrutiny of the private credit industry. First Brands’ bankruptcy filing revealed the company had accumulated over $10 billion in direct loans from creditors including Jefferies, UBS, and Nomura—exactly the kind of scenario that critics point to when warning of systemic risks. Yet Golub maintained that when properly managed, direct lending continues to deliver superior risk-adjusted returns that often outperform traditional investments: “The returns from direct lending across decades are often better than half of private equity funds.” This performance advantage, in Golub’s view, makes private credit not merely an alternative asset class but an essential component of modern portfolio construction, particularly as a hedge against the limitations of conventional 60/40 stock-bond allocations that have struggled in recent market conditions.

What distinguishes successful private credit investors, according to Golub, is their operational skill and information advantage over public markets. Unlike public market investments, where past performance famously doesn’t guarantee future results, private markets demonstrate “persistence of manager performance over time,” making manager selection critically important. The $3 trillion committed to private credit at the start of 2025 (per Morgan Stanley) might suggest overcrowding, but Golub noted that competition has concentrated primarily in large, broadly syndicated loan substitutes. This market bifurcation has left the core middle market—Golub Capital’s focus area—relatively less saturated and still rich with opportunities for experienced lenders with strong due diligence capabilities and established relationships with private equity sponsors.

For investors evaluating private credit opportunities, Golub emphasized looking beyond simple loan spreads to focus on net returns after credit losses across full economic cycles. “It is net returns after credit losses across the cycle… credit losses or the absence of credit losses drives premium returns over time,” he explained. This perspective highlights the fundamental value proposition of skilled private credit managers: their ability to avoid losses through rigorous underwriting and due diligence rather than merely chasing yield. Golub’s firm embodies this approach by functioning as a “finance company” that provides tailored solutions to borrowers, resulting in approximately 90% repeat business with private equity sponsors—a testament to the relationship-driven nature of successful private lending operations and the value those relationships create for investors.

While acknowledging that private equity firms haven’t been returning capital to investors as quickly as some expected in recent years, Golub suggested that criticism of the broader private markets ecosystem has been “overdone.” The slower distribution pace reflects current market conditions rather than fundamental flaws in the private equity model itself, which Golub continues to view as beneficial both for investors and for economic growth. “Private equity has been great for the U.S. economy,” he stated, “It continues to be great for the U.S. economy.” This balanced perspective recognizes legitimate concerns while maintaining confidence in the underlying value proposition of private markets generally, and direct lending specifically, as essential components of sophisticated investment strategies.

The conversation around private credit ultimately reflects broader questions about portfolio construction in an era of economic uncertainty and shifting correlations between traditional asset classes. Golub’s insights suggest that private credit’s continued growth isn’t merely a reaction to temporarily low interest rates or excess capital seeking yield, but rather represents a structural evolution in financial markets toward private alternatives that offer both enhanced returns and reduced correlation with public markets. For financial advisors navigating this landscape, Golub’s message was clear: skilled private credit managers offering middle-market direct lending solutions provide a valuable portfolio enhancement that goes beyond temporary trends or market cycles. As traditional 60/40 portfolios face headwinds from simultaneous drawdowns in stocks and bonds, the case for private credit as a strategic allocation rather than a tactical trade becomes increasingly compelling for investors seeking genuine diversification and enhanced risk-adjusted returns in an increasingly complex investment landscape.