By
Key Takeaways
Private credit refers to tailored financing options— typically loans —that are directly made to strategically identified companies by non-bank lenders. These financing solutions may include direct loans, distressed debt, asset-based loans or specialty finance solutions.
While private credit was once the domain of small and mid-sized businesses, larger companies are increasingly turning to private credit managers for capital. Each credit type varies in risk and return, but shares a common goal: to offer speed, flexibility, and execution that traditional banks often cannot provide.
Private credit strategies also follow a general lifecycle, though they focus on lending rather than ownership:
Fundraising – Managers raise capital from institutional and high-net-worth investors.
Deal Sourcing and Structuring – They find lending opportunities, often tied to private equity deals, and negotiate loan terms privately (e.g., floating rates, covenants, collateral).
Monitoring and Risk Management – Managers track borrower performance and intervene if risks arise.
Repayment and Liquidity – Most loans have 5–10 year terms with capital returned at maturity. Some strategies offer periodic liquidity through BDCs or interval funds.
Private credit comes in different forms, each with its own level of risk and return. These strategies include but are not limited to.
| Strategy | What it Mean | Typical Investment Length | Expected Returns | Repayment Priority |
| Direct lending | Fund acts as a non-bank lender and extends senior secured loans or credit. | 5–8 years1 | 7–12% | First in line to be repaid |
| Asset-Backed | Loans backed by identified assets such as planes, ships, or steady income streams. | 5–8 years | 10-12% | Usually first to be repaid. The underlying assets are used as collateral to secure credit. |
| Subordinated Debt | Riskier loans that rank below others but can offer higher returns. | 8-10 years | 12-15% | Repaid after senior loans |
| Distressed / Special Situations | Investing in struggling companies to help them recover and restructure.
|
5–10 years | Over 15% | May be first or second to be repaid |
Implementation Insight: Private credit can serve as a core income strategy for investors seeking higher yields than traditional bonds, especially in portfolios looking to reduce public market exposure while maintaining downside protection.
Implementation Insight: Because private credit funds are typically long-term and less liquid, investors should align allocations with capital they can commit for 5–10 years, and carefully evaluate manager experience and sourcing capabilities. Although, some strategies may also be offered through BDC and interval fund structures.
| Myth | Fact |
| Private credit is too risky | Many strategies involve senior secured loans with strong covenants. |
| Only institutions can invest | High-net-worth investors now access private credit through evergreen structures and feeder funds. |
| It’s too illiquid | While less liquid than public bonds, investors are compensated with higher yields and lower volatility. |
| It’s just like high-yield bonds | Private credit loans are often senior, directly negotiated, and offer better lender protections. |
1. Direct lending strategies may also be offered through business development companies (“BDCs”) and interval fund structures.
2. Source: Bloomberg, iCapital Alternatives Decoded, from March 2010 – March 2025. For illustrative purposes only. This is not intended to be an offer or solicitation to employ a specific investment strategy. Past performance is not indicative of future results. Future results are not guaranteed.
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