What Is Private Credit?
Private credit refers to loans and debt instruments that are originated and held by investment funds instead of banks, and that do not trade in public markets. Borrowers are often middle-market companies too small for the syndicated loan or high-yield bond markets, or businesses that value the speed and flexibility a private lender can offer over a bank process.
The asset class covers several strategies, including direct lending to performing companies, mezzanine debt, distressed and special situations investing, and specialty finance areas like asset-based lending. Banks retreated from riskier corporate lending after 2008 under tighter capital regulation, and asset managers filled the vacuum with dedicated funds.
How Private Credit Funds Work
Most private credit funds use a drawdown structure similar to private equity: limited partners commit capital, the general partner calls it as loans are originated, and interest income plus repayments flow back over a fund life of roughly seven to ten years. Fees are typically lower than private equity, often around a 1 to 1.5 percent management fee with incentive fees of 10 to 20 percent over a hurdle.
Loans are mostly floating rate, priced at SOFR plus a spread, which made the asset class especially attractive when interest rates rose. Because lenders hold positions to maturity, returns come primarily from contractual interest and fees rather than price appreciation, and investors demand an illiquidity premium over comparable public debt.
Why Private Credit Matters
Private credit has become a central funding source for leveraged buyouts, at times financing more middle-market LBOs than the syndicated loan market. Firms such as Apollo, Ares, Blackstone, Blue Owl, and HPS have raised enormous credit platforms, and the segment now drives much of the AUM growth at large alternative asset managers.
For candidates, private credit offers a career path with private equity-style analysis focused on downside protection: underwriting cash flows, negotiating covenants, and monitoring portfolios. Interviews frequently test whether you can think like a lender, asking how much leverage a business can support and what happens to recovery in a downturn.
