Banks have pulled in their horns and are no longer making risky loans to small business. That role is being taken over by "alternative asset managers" like private equity firms. For example, last year Goldman Sachs' return on equity was only 12%. That is a far cry from the 40% return that it experienced a few years ago. That contrasts with the 27.4% return by KKR. Only 25% of Appolo's $160 B portfolio is in private equity. It has $100 B in corporate loans and bonds. Blackstone and KKR have only 25% of their portfolio in corporate loans and bonds, but they have been moving in that direction.
It may be good thing that alternative asset managers are moving into the risky credit business. Unlike banks, which are dependent upon demand deposits and other short term forms of credit, the alternative asset managers are funded with long term credit. That makes them less subject to a liquidity crunch. Our last financial crisis was characterized by a bank run.
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