Back to PE Masterclass

Private Credit

Private credit is where a non-bank lender provides loans to companies, typically to small and medium size enterprises that are non-investment grade. Private credit can serve as a diversifier in a private markets portfolio as debt is less correlated with equity markets. Plus, it allows for a shorter J-curve due to the periodic income component from repayments.

For an even deeper dive into private credit, read our white paper.


Private credit in a nutshell

  • Target companies. Though the company stage varies, private credit managers generally lend to non-investment grade, small- and medium-sized enterprises.
  • Investment type. Direct loans - which are senior in the capital structure - with bespoke terms and floating-rate coupons.
  • Value-add operations. Unlike private equity, there is no involvement in the running of a target company. Direct value-add comes mostly from restructuring expertise.
  • Source of return. Private credit firms charge a floating rate spread above the reference rate, allowing the fund and investors to benefit from increasing interest rates


What is Private Credit?

As regulatory changes have led to traditional lenders - such as banks - stepping away from lending to middle-sized enterprises, private credit managers have seized the opportunity to enter the market, lending to small and medium size enterprises that are non-investment grade.

Target companies are often sourced from a credit manager’s proprietary network. The manager has the flexibility to set its preferred lending terms, typically arranging for protective covenants and collateral to protect against defaults.

Returns are achieved by charging a floating rate spread above the reference rate, allowing the lender and investors to benefit from increasing interest rates. Unlike private equity, private credit agreements have a fixed term, meaning that the “exit strategy” for an investment is pre-defined.

How do Private Credit managers add value?

Proprietary network. A private credit firm’s proprietary network of target companies and entrepreneurs allows them to screen for the best opportunities based on demand, geography, market position, cash flows and management.

Risk management. Enhanced due diligence is fundamental in screening out risky borrowers. Private credit managers will leverage their strong market expertise to provide robust private credit analysis.

Structuring expertise. In case of a default, managers can deploy the required resources to assist companies in the bankruptcy process, helping to extract maximum value for the fund.

Want to view our funds?

Create your free Moonfare account now to view our funds, get proprietary investment insights, performance data and more.

Sign up to view funds

Important Information: Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance. Your capital is at risk. Please see


Was this article helpful?

Thank you for your answer

Keep learning

Drag to explore
{ "@type": "Person", "name": "Pamela Espinosa", "description": "Pamela is the head of content management at Moonfare, where she oversees editorial and sales collateral content strategy. Prior to joining Moonfare, Pamela held positions in asset management and in technology, as a Senior Associate at PIMCO and a Senior Manager at Uber. She holds an MBA from London Business School and an Finance from University of Rochester.", "jobTitle": "Head of Content Management", "sameAs": [ "" ], "knowsAbout": [ "Financial Writing", "Venture Capital", "Private Equity", "Investing" ], "alumniOf": [ { "@type": "CollegeOrUniversity", "Name": "University of Rochester", "sameAs": "" }, { "@type": "CollegeOrUniversity", "Name": "London Business School", "sameAs": "" } ] }