Learn What is Private Credit? Direct lending, built for certainty and flexibility Private credit includes a range of strategies, but direct lending is the largest and most relevant starting point for most advisors. It refers to privately negotiated loans made by a single lender or small group of lenders, typically to middle-market companies, often backed […]
Sourcing is the engine of private credit. Strong sourcing gives managers access to a wider set of opportunities, which improves selectivity and helps avoid weaker deals. Established relationships with private equity sponsors and borrowers often generate repeat business, creating a steady pipeline of high-quality transactions. Incumbent lenders also benefit from deeper knowledge of existing borrowers, […]
Scale matters in private credit. Larger managers often benefit from deeper resources, broader sourcing networks, and stronger negotiating power – advantages that can translate into better deal flow and more selective underwriting. Scale also supports operational efficiency and portfolio diversification, helping reduce risk while maintaining consistent returns. For example, a manager with the resources and […]
The way a private credit fund is structured—and the terms set at inception—can shape both risk and return. Beyond fees and expenses, fund terms influence alignment of interests, asset allocation guidelines, and governance standards. Thoughtful structuring can also improve tax efficiency, enhancing after-tax returns for investors.
Transparency is about clarity and trust. In private credit, it means giving investors a clear view into how decisions are made, how risks are managed, and how the portfolio is performing. Strong managers communicate to investors openly about deal terms, governance processes, and any changes in borrower health. This level of visibility helps investors evaluate […]
Underwriting is the heart of private credit. It begins with screening, where managers quickly eliminate deals that do not meet their risk and return criteria. The strongest opportunities move into deeper analysis, including financial modeling, covenant design, stress testing, and a review of operational and legal details. Throughout the process, deal teams and investment committees […]
Workout is the process managers use when a borrower shows signs of stress or enters default. The goal is simple: protect and recover as much value as possible for investors. Strong managers step in early, working with the borrower and any sponsors to renegotiate terms, adjust the structure, or secure additional support. When needed, they […]
Yield (i.e.“current yield”) is the annual income generated by a loan, expressed as a percentage of its purchase price or par at inception. It is normally the main driver of return in private credit. For floating-rate loans, yield comes from three components: the base rate, such as SOFR; the credit spread added above the base […]
Alignment is about shared outcomes. In private credit, it means ensuring that a manager’s incentives are closely tied to those of investors. The clearest signs include meaningful co-investment by the manager and performance-based compensation models that reward long-term outcomes rather than short-term gains. When a manager prioritizes alignment, their priorities match investors.
Who a private credit manager lends to is one of the biggest drivers of risk and return in private credit. Borrower size, ownership, and industry all matter. Smaller companies with less than ten million dollars of EBITDA may offer higher yields and lender-friendly terms, but they can be more vulnerable to economic shocks. Larger companies […]
Capital costs are a major driver of returns in private credit. They reflect what a manager pays to finance the loans in the portfolio. Managers with access to lower-cost, stable financing can offer more competitive terms to borrowers and support stronger returns for investors. The structure of that financing matters too. Diverse sources, such as […]
Efficient deployment of capital is critical to delivering strong returns. Managers need to strike the right balance between raising capital and putting those assets to work. Raising too much capital too quickly can lead to “cash drag,” where excess capital sits in low-yielding instruments, or worse, forces managers to compromise on deal quality to stay […]