Navigating the landscape of private credit investing

This article explains the fundamentals of private credit, from its core investment strategies to the unique operational, accounting, and compliance demands it places on your fund's back office.

What is private credit investing?

Private credit investing is the practice of providing privately negotiated loans and other debt financing to companies. Unlike public debt, like bonds, these instruments are not issued or traded on an open market. Instead, each loan is a unique agreement between the lender and the borrowing company.

This asset class is built on the fundamental practice of lending capital in exchange for a contractual return, primarily through interest and principal repayments. The goal is to generate a steady stream of income from the interest paid on the loans.

The capital that non-bank lenders provide to companies typically comes from investment funds that the lenders raise from limited partners (LPs), who invest in the fund for the purpose of generating financial returns. This structure—investing through a fund—gives private credit managers an established pool of capital that they can deploy quickly and flexibly at their own discretion. These factors help differentiate private credit from traditional bank loans, which are typically financed and syndicated on a deal-by-deal basis that can involve complicated negotiations among stakeholders.

How private credit differs from other private fund strategies

Private credit investing is distinct from private equity (PE) and venture capital (VC), which concentrate on acquiring ownership stakes in businesses. While a PE fund buys equity to seek capital appreciation, a private credit fund issues loans to generate predictable income. This fundamental difference in the underlying asset dictates a completely different operational infrastructure for the fund.

Many investment firms deploy capital primarily or exclusively in the private credit market. Increasingly, large PE firms and other established investors are also branching into the private credit space.

The shift from tracking equity to monitoring loans means your back office must be retooled. The focus moves from complex cap table management to administering even more complex loan agreements. Your team's day-to-day activities and the technology required to support them change significantly.

Because the core asset is a loan, the entire operational focus of these private funds changes. Instead of tracking ownership percentages, your team must track interest payments, principal repayments, and compliance with loan terms. This requires a different set of skills and a different technology platform than what is used for managing equity investments.

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Why fund managers are turning to private credit

General partners (GPs) are increasingly allocating capital to private credit investments for several strategic reasons, as the asset class has become one of the fastest-growing segments of the financial system, totaling more than $3 trillion as of late 2024. During periods of significant market volatility, such as the first half of 2022 when the U.S. stock market had its worst first six months since 1970, investors often change their approach for a volatile market. This makes predictable income streams from contractual interest payments especially attractive, as investors are often more drawn to assets with strong recurring revenue and high retention rates. This provides a more consistent return profile compared to the exit-dependent returns of PE.

Private credit funds have stepped in to meet this demand, as borrowers are choosing these lenders because they can deploy capital quickly, flexibly, and with greater confidentiality than is possible in public debt markets. For a fund CFO, these strategic goals translate into non-negotiable operational requirements. The promise of "predictable income" to LPs requires a back office that can flawlessly track, calculate, and collect interest payments across a diverse loan book. Delivering on the promise of downside protection means having systems in place to rigorously monitor loan covenants and the financial health of each borrower.

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Private credit strategies

Within the widening world of private credit, there are several types of opportunities that investors might pursue—investments in different types of debt, issued by different types of companies, that come with different profiles of risk and reward. Some funds are solely dedicated to one of these strategies, while others pursue a more varied approach.  

In addition to private credit investors, all of these loan types are also issued by banks and other traditional lenders.

Direct lending

Direct lending is the practice of providing senior secured loans, often to middle-market companies that may not have access to public debt markets. These loans are typically the primary source of debt capital for the borrower and are secured by the company's assets.

The operational challenge here is one of volume and specificity. Your team must manage a portfolio of individual loans, each with its own custom-built terms, repayment plans, and covenants. Manually tracking these details with spreadsheets becomes a significant source of operational risk as the portfolio grows.

Mezzanine and subordinated debt

Mezzanine debt, a form of subordinated debt, is a hybrid instrument that blends debt and equity characteristics, sitting between senior debt and common equity in the capital stack. It offers a higher return than senior debt to compensate for its increased risk and often includes an equity "kicker" in the form of warrants or a conversion feature.

This hybrid nature creates an operational challenge for fund administrators. Your general ledger (GL) must account for both a debt component, like regular interest payments, and an equity component. This dual nature complicates everything from accounting entries to distribution waterfalls.

Distressed debt and special situations

This strategy involves investing in the distressed debt of companies that are in or near bankruptcy, a practice also known as a credit opportunities strategy. The goal is to gain control of the company through its debt and profit from its recovery or restructuring.

This is often the most operationally intense strategy. It requires deep legal and administrative expertise to navigate bankruptcy proceedings, manage complex restructurings, and handle potential debt-for-equity swaps. This is where a fund administrator's capabilities are truly tested.

Asset-based lending

Asset-based lending involves making loans that are secured by specific assets on a company's balance sheet, such as accounts receivable, inventory, or equipment. The amount of the loan is directly tied to the value of the underlying collateral.

Operationally, this requires constant monitoring and valuation of the collateral. Your team must be able to track the value of these assets in near real-time to ensure the loan remains secured, adding another layer of administrative complexity.

Participants in the private credit market

As the private credit market has grown in recent years, the number of players actively borrowing and lending in the market has grown, too. Some of the entities that most commonly appear in private credit activity include: 

• Corporate borrowers: Many different types of companies obtain loans through the private credit market. Some of the most common profiles of borrowers in the market include middle-market companies, leveraged buyout (LBO) targets, startups and other high-growth companies, and companies in financial distress. 

• Private credit funds: Some investment firms are in the sole business of issuing private loans to corporate borrowers. These firms might specialize in one particular type of private credit, such as mezzanine debt, or they might deploy capital across the asset class. 

• Private equity firms: Over the past decade or two, many firms that traditionally focused on making equity investments in private companies have branched into private credit, too. There are clear synergies between the two asset classes, as private credit providers frequently issue loans to companies that are backed by PE firms.  

• Hedge funds and alternative asset managers: Private credit is part of the playbook for many hedge funds and other asset managers that invest across both the public and private markets. This wasn’t always the case: Many years ago, private credit was a niche area populated primarily by lending specialists. Today, it’s a much larger segment of the market populated by some of the largest and most diversified investment firms in the world. Many of the traditional lines between private credit, PE, and other alternative investments have blurred.

• Family offices: Family offices can play multiple roles in the private credit ecosystem, acting at various times as both LPs in private credit funds managed by other lenders and as direct lenders themselves. A family office might also serve as a co-investor providing a portion of the capital alongside another private lender in a larger deal. While cases of family offices issuing loans directly have grown more frequent, it’s traditionally much more common for family offices to invest in private credit as LPs.

• Insurance companies and pension funds: As sources of long-term capital, insurance companies and pension funds are some of the most important players in the modern private credit market. These industries are well positioned as capital providers for private credit for multiple reasons, including their long time horizons and requirements for consistent financial growth in a large base of capital. In some cases, insurance companies and pension funds act as standard LPs in traditional private credit funds. In other cases, they serve as capital sources for large pools of perpetual capital managed by private credit providers. Apollo Global Management has been a pioneer in this regard with its ownership of Athene Holding, a retirement services provider that now contributes hundreds of billions of dollars to Apollo’s asset base.

How private credit investing works

The full process ranging from when a firm raises private credit financing and issues debt to when the debt is fully repaid can take many years and cover many twists and turns. Some private loans look very different from others, with varying timelines, deal terms, and covenants between borrower and lender. Generally, however, the timeline of raising private credit often follows a similar outline: 

Capital sourcing

Traditionally, private loan providers source capital from LPs who are looking to generate some long-term return on their investment. In most cases, private lenders raise this capital through specialized funds with lifespans of several years. This process of raising fund capital and maintaining LP relationships is historically a key business need for private lenders. 

Increasingly, however, some of the largest private lenders in the industry are maintaining pools of perpetual capital instead of raising discrete, closed-end credit funds. In some cases, the capital that underlies these evergreen funds is sourced from insurance providers or other businesses with long-term needs for steady capital accumulation. 

On the company side, relationships also play a major role in sourcing capital from lenders: Companies raising private credit financing often have existing ties with investors, investment banks, or other financial advisors who may have their own connections with private credit providers—or, in some cases, may be private credit providers in their own right. In addition to leveraging existing networks, a company might also seek other potential lenders who specialize in the size or type of loan that the company hopes to raise. 

Identifying borrowers

Many different types of companies can and do raise private credit financing. However, there are a few particular company archetypes that are most closely associated with the private credit industry: 

• Middle-market businesses: Many borrowers in the private credit industry fall within the middle market, typically defined as having annual revenue between $10 million and $1 billion. In addition to the other attractions of private credit, these types of companies may be drawn by a lack of alternatives: Many of the companies in this bracket don’t have enough market interest to successfully issue public bonds or raise syndicated loans through traditional banks.

• LBO targets: A company that’s being acquired by a PE firm via an LBO typically adds new debt to its balance sheets to help finance the transaction. In many cases, some or all of this debt is from private lenders. In some LBOs, the debt portion consists only of senior debt, which can come through term loans, revolving credit facilities, or other loan forms. Other LBOs use a combination of senior and mezzanine debt. 

• Startups and high-growth companies: Companies that have recently raised VC backing may turn to private credit as a way to fuel growth without further diluting their cap tables. In some cases, a startup might raise private credit as a last bit of bridge financing before an eventual IPO. These companies are often drawn by the private nature and customizability of private loans. Like middle-market companies, some startups might also otherwise struggle to raise public debt or syndicated loans.

• Companies in financial distress: Due to an increased risk of default, companies in financial distress may struggle to raise debt financing from traditional sources, making private credit an attractive option. The flexibility of private credit is also beneficial for lending to distressed companies, as their situations are often unique and may benefit from creative loan structuring. 

• Real estate projects: Most real estate projects require a significant initial outlay of capital many months or even years before they start to generate revenue. In many cases, the source of that capital is some form of loan. As a lender, lending to a real estate project may require different expertise and different knowledge than lending to a company. 

Loan structuring and negotiation

One of the main advantages of the private credit industry is that loans in the space tend to be more flexible and negotiable than public loans or syndicated loans. Some of the key aspects of a private loan that the borrower and lender must negotiate include: 

Loan size

The size of a private loan is typically determined by the purpose of the loan and the financial profile of the borrower. Most private loans are raised for some specific goal, and the nature of that goal will inform how much capital the borrower hopes to raise. Whether the company is able to obtain a loan of its desired size may depend on how potential lenders assess a range of financial factors, including the company’s revenue, its cash flows, its current leverage levels, and the lender’s broader appetite for risk. 

Interest rate

The interest rate on a loan can be seen as the cost the borrower pays for accessing capital. The higher the interest rate, the more expensive the loan, from the perspective of the borrower. If a lender believes a loan is riskier than others, they may require the borrower to pay a higher interest rate. Other variables around the interest rate are also typically open to negotiation, such as whether the rate is fixed or floating and whether the loan amortizes. 

Servicing interest

Private lenders can offer borrowers the option of servicing their loans through cash interest payments or through payment-in-kind interest (commonly called PIK interest). In cash interest payments, the borrower covers interest on the loan through regularly scheduled cash payments. In PIK interest, instead of paying cash, the borrower continuously adds any new interest that has accrued onto the existing balance of the loan, increasing the total owed.

As such, PIK interest is a way for borrowers to reduce their cash outlay on interest payments in the short term at the expense of increasing their debt load in the future. PIK interest is more commonly seen in riskier debt instruments, such as mezzanine debt, while cash interest is more common in senior debt. 

Maturity

The maturity date on a loan is the time at which full repayment is due the lender. A company and a private lender may negotiate for either longer or shorter maturities depending on the purpose of the loan, the company’s long-term financial outlook, and other variables. 

Repayment schedule

Borrowers in the private credit market typically make regular payments to the lender over the life of a loan, often on a quarterly or monthly basis. The structure of these payments can take many different forms and is often a key aspect of a loan’s terms. 

In some loans, for instance, the borrower might make payments only on the interest throughout the term of the loan, followed by a balloon payment on the principal at the time of maturity. Other loans might be fully amortized, with the borrower making proportional payments on both the principal and the interest over time. Depending on a company’s cash flows and other financial variables, different borrowers might prefer different structures and schedules.

Security and collateral

The borrower and the lender must decide whether a loan will be secured or unsecured, and if it is secured, they must also decide which assets will serve as collateral. Most private loans in the private credit market are secured, which helps mitigate risk for the lender, but there are plenty of exceptions. Mezzanine debt, for instance, is less likely to be secured. Common types of collateral that borrowers might use to secure a private loan include accounts receivable, cash flow, inventory, equipment, and real estate.  

Covenants

A loan covenant is an agreement between a borrower and lender that must be upheld for the borrower to remain in good standing. In private credit, these covenants can take many forms: A loan agreement might include a covenant that the borrower will maintain a certain minimum revenue threshold, or that it won’t take on any more debt. 

Depending on how many of these guardrails are included, a loan might be described as either covenant-heavy or covenant-lite. A distressed or otherwise risky loan is more likely to be covenant-heavy, to give the lender warning of any financial trouble or potential default. 

Equity kickers 

An equity kicker is a term in a loan that provides the lender an option to eventually acquire some of the borrower’s equity, giving the lender access to additional financial upside beyond the loan’s repayment. Warrants, convertible debt, and profit-sharing arrangements can all be forms of equity kickers. These types of structures can provide an additional financial incentive to lenders beyond the loan’s interest.

Due diligence and risk assessment

As with any investment in the private markets, a private credit provider typically performs due diligence on a potential borrower before it agrees to issue a loan. A major portion of this diligence is determining the creditworthiness of a borrower and weighing how much risk the lender might take on by issuing a loan. 

Compared with investment firms performing diligence for a PE or VC investment, a private lender may be less concerned with a company’s financial upside and more concerned with potential downsides—i.e., the risk it defaults on a loan because the return on most debt is capped.

Funding and deployment

Once the lender conducts due diligence and approves a loan, the process of getting capital into the hands of the borrower tends to be much quicker in a private loan than in a bank loan. Instead of raising capital from other lenders through syndication, which can be a time-consuming process, a private lender can simply wire funding from its own accounts to the borrower’s accounts, potentially calling capital from LPs as needed.

In some cases, the borrower receives the full amount of the loan up front in a lump-sum disbursement. In others, capital may be drawn at different times throughout the loan term, such as in a revolving credit facility. 

Monitoring and compliance

Private lenders typically require borrowers to provide regular financial statements to track the company’s performance and ensure the company maintains any loan covenants. Lenders might also schedule regular meetings or check-ins with company management, and they might employ third-party auditors as an additional level of oversight. 

Repayment and exit strategies

Unlike with a PE or VC investment, a private credit investment has a predetermined timeline, in the form of the repayment schedule. Since a private credit investor makes their money through interest payments, rather than from reselling the company’s equity, there’s no need to determine and execute an exit strategy. Assuming the borrower remains in good standing and makes all payments on time, the formal relationship between the lender and borrower comes to an end once the loan fully matures.

How to invest in private credit

1. Identify your access point: Most individual investors gain exposure to private credit through professionally managed funds, such as private credit funds, business development companies (BDCs), or interval funds. Direct lending to companies is typically reserved for institutional investors, a type of accredited investor, or others with significant capital and expertise.

2. Assess fund strategy and manager expertise: You should review the fund’s investment thesis, target borrower profile, risk controls, and the track record of the management team.

3. Understand liquidity and lock-up periods: Private credit investments are generally illiquid with multi-year lock-up periods. You need to ensure your capital commitments match your liquidity needs, as you won't be able to easily access your money.

4. Review fees and terms: Analyze management and performance fees, hurdle rates, and other terms outlined in the fund’s offering documents.

5. Perform due diligence on reporting and transparency: Look for institutional-grade reporting, including regular updates on loan performance, yield, defaults, and realized income distributions. Clear and frequent communication is a sign of a well-run fund.

6. Complete the subscription and onboarding process: You'll work with the fund administrator to fulfill Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, sign subscription documents, and fund your capital commitment through a capital call.

7. Monitor performance: Stay engaged with quarterly and annual reports, and communicate with the fund’s investor relations team.

Why private credit appeals to investors

In most cases, the capital that private lenders supply to companies originates with LPs, who invest in private credit funds because they expect to generate an attractive return. The recent boom in private credit thus reflects a growing interest in the sector among LPs. Some of the primary reasons that investors are drawn to private credit include: 

Higher yields

Private credit usually offers higher interest rates to investors than public credit, which can convert to high yields. This is mainly to compensate investors for the fact that private credit tends to be less liquid. Since capital may be tied up for longer in a private loan than in a public one, investors often receive more favorable interest rates, a trade-off for the reduced degree of flexibility.

Most private loans are based on some benchmark lending rate, such as the Secured Overnight Financing Rate (SOFR) or Treasury yields. On top of this benchmark, most lenders add a credit spread, which can be thought of as a premium  that the borrower agrees to pay on top of the benchmark rate to compensate the lender for the risk of issuing the loan. Spread is often measured in basis points, or bps. Loans with a higher risk of default tend to have higher spreads. 

Diversification

Private credit can also be an attractive way for investors to diversify their portfolios and invest in assets that are less correlated with public markets. Many of the companies that raise private debt funding are privately owned, including many smaller companies in narrow industries that tend to be less represented on public exchanges.  

Regular cash flows

Most private credit investments provide predictable cash flows in the form of regularly scheduled payments. This is very different from PE, where returns to investors tend to be infrequent. Private credit can be an attractive option for investors seeking exposure to private companies without sacrificing stable cash flows. 

Customization

The various investment strategies that exist within the private credit space allow investors to customize their approaches. Investors can choose between senior debt, mezzanine debt, distressed debt, or other deal types, and they can also choose between various repayment structures, covenants, and other loan terms. 

Potentially reduced downside 

Some areas of private credit are seen as relatively safe investments where allocators can lock in stable returns with little danger of losing capital. This is particularly true of secured loans, where the borrower puts up collateral in exchange for financing. These loans also typically offer lower yields than some other asset classes, but the trade-off can be attractive for investors focused on risk-adjusted returns.

Operational challenges of private credit funds

Effective private credit fund management requires a robust back office capable of handling complex loan administration, meticulous fund accounting, and stringent compliance.

Complex loan administration

Generic accounting software and spreadsheets are often inadequate for managing the complexities of private credit loans. The custom nature of these instruments—which often include features uncommon to traditional bank loans such as structured equity components or high prepayment penalties—creates several administrative burdens that can quickly overwhelm a finance team.

• Floating rates: When a benchmark rate like the SOFR changes, interest on every loan in the portfolio must be recalculated. Manually performing this task across hundreds of loans is not only time-consuming but also a source of potential error.

• PIK interest: PIK interest presents a unique accounting challenge, as the accrued interest is added to the principal balance, complicating future calculations.

• Covenant monitoring: Tracking financial and reporting covenants is a high-stakes activity. A missed test can trigger a default, and your systems must provide early warnings, not after-the-fact notifications. A purpose-built system of record can automate these complex workflows, providing the control and accuracy that manual processes lack.

Fund accounting and valuations

The accounting process for a private credit fund is continuous and event-driven, unlike the periodic, model-driven process of private company valuations required by ASC 820 that are common in PE. Every interest payment, principal repayment, and accrual is a transaction that must be recorded on the GL in real time.

An accurate, daily net asset value (NAV) is a requirement for proper fund management and investor reporting. An event-based GL provides the single source of truth needed for an accurate, up-to-the-minute view of the fund's financial position. This allows for correct performance tracking and timely reporting to LPs.

Compliance and audit readiness

Private credit funds face intense scrutiny from LPs and auditors, who need to see an unbroken chain of evidence for every dollar. This requires a level of record-keeping that is both meticulous and easily accessible. This level of preparation is non-negotiable under the SEC's annual audit requirement, during which you'll be asked to produce loan agreements, payment histories, and detailed interest calculation worksheets.

The compliance burdens are also unique, such as the need to perform KYC and AML checks on borrowers. A dedicated auditor portal can change the annual audit from a painful, manual exercise into a streamlined, collaborative review by giving auditors secure, permissioned access to fund documents and transaction histories.

Managing the private credit fund lifecycle

A credit fund's lifecycle involves several critical stages, each presenting unique operational and administrative demands.

Fund formation and closing

The process begins with legal documents like the limited partnership agreement (LPA), which defines the fund's structure. These documents can include specific provisions for using leverage, and may contain a recycling provision that allows the fund to re-lend repaid principal. These unique features complicate tasks like cash management and reporting.

To build trust with investors from day one, it's essential to have a professional and seamless LP onboarding process. A digitized subscription process makes it easy for LPs to review documents, sign agreements, and commit capital, setting a positive tone for the entire fund's lifecycle.

Capital deployment and monitoring

This is a key part of the deal flow process, which requires detailed underwriting and due diligence on each potential borrower. This involves a thorough review of their financials, management team, and market position.

Effective portfolio management is about understanding how the portfolio's overall performance impacts fund-level returns and liquidity. For this strategic oversight, CFOs need tools that can model different scenarios, such as the impact of early repayments or a rise in defaults. These insights allow them to manage cash reserves effectively for future capital deployment and make informed decisions about the fund's direction.

LP reporting and communication

While PE LPs focus on big-picture fund performance metrics like total value to paid-in (TVPI), private credit LPs demand more specific and frequent data. They want to see detailed investor reports on the yield and income generated by the fund. This is different from the PE metric of multiple on invested capital (MOIC), which measures capital appreciation. Private credit LPs also want to know about the health of individual loans in the portfolio, looking at metrics such as loan-to-value ratios and interest coverage ratios for borrowers.

A modern, integrated platform provides LPs with a single, secure login. Through this portal, they can access performance dashboards, gain key portfolio insights, and view a detailed schedule of investments (SOI). This platform also allows them to securely receive distributions and tax documents, which builds trust and confidence in the fund manager.

Risks of private credit

These various types of investors are all drawn to the private credit industry by the prospect of generating relatively high returns at relatively low risk. However, there are still plenty of potential risk factors that can derail investments in private credit:

• Default: The primary risk of a private loan is default. If the borrower goes bankrupt or becomes unable to make payments for other reasons, the lender might lose some or all of their investment, depending on whether (and to what extent) the loan is secured and any recovery in reorganization or dissolution.

• Refinancing: If a borrower is in danger of default or in other distress, or interest rates have decreased, it may seek to refinance an existing private loan on more attractive terms. If the alternative is default or prepayment, agreeing to a refinancing that might decrease the lender’s potential profit might be the lesser of two evils. 

• Illiquidity: Private credit is largely an illiquid asset class, where an investor’s capital might be locked up for years at a time. Investors may want to consider their liquidity needs before tying up significant capital in private credit. 

• Interest rates: The relative performance of investments in private credit can be closely tied to interest rates in the rest of the economy, particularly for private loans with fixed rates. If the interest rate on a private loan is substantially higher than interest rates in the broader economy at the time of issuance, the loan might be in line to produce a better-than-average return. If the rates were to spike, however, the performance of that same loan might start to be outpaced by yields in other asset classes or loans with floating rates. 

• Market economics: As the connection with interest rates shows, the private credit industry is closely intertwined with the broader financial system. In many cases, investing in private credit is also a bet on the underlying success of the companies that act as borrowers in the market. While the tangle of cause and effect is often complex, major shifts in the economy can also have significant knock-on impacts in private credit. 

• Legal and regulatory changes: The private credit industry may be affected by future legal and regulatory changes. Such changes may be related to private credit itself, or they may be related to one or more of the many other industries in which private lenders deploy capital. The size and centrality of the private credit market today suggests it can be impacted by a wide range of potential shifts. 

Regulation in private credit

At present, investing in many private credit funds is restricted to accredited investors. Many lenders and asset managers, however, are exploring ways to give retail investors exposure to the asset class, whether or not that means being able to invest directly in funds. 

Regulators in the U.S. are currently aiming to better their understanding of how and where the private credit industry operates, with potential implications for future regulation. The Federal Deposit Insurance Corp. recently asked some of the country’s biggest banks to report on their year-end exposure to the private credit industry, but not every major lender agreed to comply. 

Future trends and industry outlook

The private credit industry has grown considerably over the past two decades, and many players in the industry expect that growth to continue in the years to come, with estimates that the size of the industry could be between $2 trillion and $3 trillion by the end of the decade.

One reason for this positive outlook is that the private markets continue to grow. As startups stay private for longer and the number of publicly traded companies declines, a larger percentage of economic growth takes place in the private sector, and private lenders are well positioned to capitalize.

Building an institutional-grade back office

Private credit investing demands a modern, integrated technology platform. A fragmented approach that relies on spreadsheets, generic accounting software, and multiple disconnected service providers creates an unacceptable level of operational risk.

As Brian Montgomery, CFO of Legalist, puts it, “Other admins build their own systems and they’re full of tiny errors... With Carta, if your inputs are correct, your outcomes are consistent.”

The right fund administration partner, equipped with a modern private credit solution like Carta, is a strategic asset. It enables a firm to scale its private credit strategy with confidence, maintain compliance, and build lasting trust with its investors by delivering accuracy and transparency. An excellent operational foundation is not just a cost center but a competitive advantage that supports growth.

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Frequently asked questions about private credit investing

What is the typical return on a private credit investment?

Private credit returns may range from 8 to 10%. Returns are typically measured by the yield and income generated from loan interest payments, not by a MOIC (as is common in PE). Private credit funds generally offer higher yields than public credit to compensate investors for the lower liquidity of the asset class. The goal is to generate a steady stream of predictable income from contractual interest payments.

Is private credit investing riskier than private equity?

The risk profiles are fundamentally different; private credit focuses on capital preservation and downside protection, while PE accepts higher risk in pursuit of higher returns.

How does a floating interest rate affect fund administration?

Floating rates require an automated accounting system that can dynamically recalculate interest accruals across the entire loan portfolio whenever a benchmark rate changes.

What is a covenant in a private credit loan?

A covenant is a condition the borrower must meet, such as maintaining a certain level of cash flow, to avoid defaulting on the loan.