What is private credit?
- Definition
- Private credit refers to loans and debt instruments originated and held by non-bank lenders, such as private funds, rather than issued through public bond markets or traditional bank channels.
Private credit encompasses strategies including direct lending, real estate debt, asset-backed lending, and mezzanine financing. Because private credit investments are not listed on exchanges, they are less liquid than publicly traded bonds; investors accept this illiquidity in exchange for higher potential yields.
For investors, private credit offers the potential for current income at attractive yields, lower volatility compared to equity investments, and limited correlation to public market fluctuations. Yields can be fixed or floating and investments often have protective covenants that give lenders specific rights if a borrower's financial condition deteriorates.
