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Unlocking Private Credit

WHAT IS PRIVATE CREDIT?

Private Credit Investing Basics

Credit is a contract (often, a loan) that a borrower repays a lender with interest. Private credit refers to privately negotiated loans between a borrower and a non-bank lender. 

A History of Private Credit  

Private Credit is a fast-growing asset class and there are several forces behind its rise.
The retrenchment of US and European banks creates opportunities for private lenders as borrowers seek partners who can provide flexibility, speed of execution, and surety of capital.
 

Decline in the Number of Commercial Bank Lenders

Decline in the Number of Commercial Bank Lenders
*Includes U.S. and non-U.S. banks and securities firms Source: PitchBook, LCD. Past performance is not an indication of future results. Due to a significant decline in loan issuance in the last 12 months, LCD did not track enough observations to compile meaningful averages for investor analysis for the period ending Sept. 30, 2023. Highly leveraged loans only (Pre-1996: L+250 and Higher; 1996 to 2021: L+225 and higher; 2022 to date: SOFR+225 and higher). Excludes left and right agent commitments (including administrative, syndication, and documentation agents, as well as arranger).
Decline in the Number of Commercial Bank Lenders
*Includes U.S. and non-U.S. banks and securities firms Source: PitchBook, LCD. Past performance is not an indication of future results. Due to a significant decline in loan issuance in the last 12 months, LCD did not track enough observations to compile meaningful averages for investor analysis for the period ending Sept. 30, 2023. Highly leveraged loans only (Pre-1996: L+250 and Higher; 1996 to 2021: L+225 and higher; 2022 to date: SOFR+225 and higher). Excludes left and right agent commitments (including administrative, syndication, and documentation agents, as well as arranger).

Comparing Private Credit to Traditional Fixed Income

Private credit may offer the potential for higher yield and increased investor protections through negotiated terms, covenants and pricing.
 
 Traditional Fixed Income
 Private Credit
MARKET DESCRIPTION Publicly Syndicated and Sold Privately Originated and Held
TRADED Yes No
COUPON PAYMENTS Yes Yes
COUPON STRUCTURE Typically Fixed Rate Typically Floating Rate
CREDIT RATING Rated Not Rated
CALL PROTECTION Varies Yes
LIQUIDITY Liquid Illiquid
VALUATIONS Frequent Infrequent

For illustrative purposes only.

ATTRIBUTES OF PRIVATE CREDIT INVESTMENTS

Private Credit Investments Typically Seek to Deliver... 

Private credit has offered higher yields than many traditional fixed income assets.
 

Yield to Maturity

Private credit has offered higher yields than many traditional fixed income assets.
Source: Bloomberg, unless otherwise noted. US Treasuries represented by ICE BofA 10-Year US Treasury Index. US Agg represented by Bloomberg US Agg TR Unhedged USD Index. US Investment Grade represented by Bloomberg US Corporate Index. CMBS represented by ICE BofA US Fixed Rate Agency CMBS Index USD Hedged. US Direct Lending represented by Cliffwater Direct Lending Index (Source: Cliffwater as of 12/31/24. Yield to maturity as of 3/31/25 unless otherwise noted.
Private credit has offered higher yields than many traditional fixed income assets.
Source: Bloomberg, unless otherwise noted. US Treasuries represented by ICE BofA 10-Year US Treasury Index. US Agg represented by Bloomberg US Agg TR Unhedged USD Index. US Investment Grade represented by Bloomberg US Corporate Index. CMBS represented by ICE BofA US Fixed Rate Agency CMBS Index USD Hedged. US Direct Lending represented by Cliffwater Direct Lending Index (Source: Cliffwater as of 12/31/24. Yield to maturity as of 3/31/25 unless otherwise noted.

CONSIDERATIONS FOR PRIVATE CREDIT INVESTING

Here are some common types of private credit investment strategies:   

Illustrative Risk/Return Profiles by Fund Type

While each has a unique risk and return profile, there are some broad risk/return generalizations for each of the private credit asset classes based on historical data.
Illustrative Risk/Return Profiles by Fund Type (Vintages 2011-2017)
For illustrative purposes only. Source: Preqin, hypothetical illustration based on historical risk and return analysis, vintages 2011-2017, the most recent data available from Preqin.
Illustrative Risk/Return Profiles by Fund Type (Vintages 2011-2017)
For illustrative purposes only. Source: Preqin, hypothetical illustration based on historical risk and return analysis, vintages 2011-2017, the most recent data available from Preqin.

There are several factors that drive the risk/return profile of private credit investments:

It’s important to consider both a borrower’s current financial health and their prospects for repayment in the future. 
Explore Other Private Market Asset Classes
Dig deeper into three other private market asset classes to learn what they are, why they matter, and how they may fit within existing portfolios.
  • Private Equity
    Private equity involves investment in private companies with growth potential or private businesses that need financial restructuring with the intention of enhancing the value of the invested companies over time.
    Explore Private Equity
  • Private Infrastructure
    Private Infrastructure entails the raising of private capital to fund the development of infrastructure, including the physical structures, facilities and systems, required for economies and societies to function.
    Explore Private Infrastructure
  • Private Real Estate
    Private real estate refers to investment in real estate properties that are privately owned and managed by individuals, partnerships, or private companies, rather than being publicly traded in the stock market.
    Explore Private Real Estate

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