Private Credit Explained

Overview

What is private credit?

The term private credit generally refers to loans and other debt instruments that are negotiated directly between a borrower and a non-bank lender. Private debt instruments are not traded on public exchanges but rather are typically held to maturity by the lender. Private lenders source these instruments directly and often negotiate terms that may provide substantial downside mitigation. Because private credit is less liquid and more complex than most public market alternatives, private lenders are usually able to demand a yield premium above public market debt.

Potential portfolio benefits¹

Yield enhancement

Private credit investments often offer higher yields compared to traditional fixed-income securities. These higher yields can potentially provide a significant income boost to a portfolio, helping investors generate more cash flow to meet their financial goals.

Diversification

Private credit can add potential diversification benefits to a portfolio. Unlike publicly traded assets, which are often correlated with broader market movements, private credit investments may have lower correlation to traditional asset classes. This can help reduce overall portfolio risk and enhance risk-adjusted returns.

Reduced market volatility

Private credit investments are typically illiquid, meaning they cannot easily be sold or exchanged for cash at fair market value. Additionally, private credit investments are typically not traded on public exchanges. This illiquidity can lead to reduced price volatility compared to publicly traded assets.

Access to niche markets

Private credit allows investors to access niche markets and sectors that are not easily accessible through public markets. This can provide exposure to compelling investment opportunities and potentially higher returns.

Inflation hedge

Private credit investments, especially those tied to real assets or floating-rate strategies, can serve as a hedge against inflation. Inflation erodes the purchasing power of fixed-income investments, making certain private credit assets potentially more attractive in periods of high inflation.

At-a-glance: Private credit v. traditional bonds

	Private credit	Traditional bonds
Terms	More covenants for lenders More flexibility for borrowers	Less covenants for lenders Less flexibility for borrowers
Yield	Potentially higher	Generally lower
Liquidity	Less liquid	More liquid

Private credit

Traditional bonds

Terms

More covenants for lenders
More flexibility for borrowers

Less covenants for lenders
Less flexibility for borrowers

Yield

Potentially higher

Generally lower

Liquidity

Less liquid

More liquid

Asset class characteristics are presented for educational purposes only and are summary in nature. They are not intended to reflect past or future performance and should not be relied upon as investment advice or a recommendation.

Perspectives in private credit

Asset-backed finance in portfolio construction

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Featured

Beyond traditional credit: The portfolio case for asset-backed finance

Akhil Bansal, Head of Asset-Backed Finance, joins Brian Marcus, Head of Cross Platform Investing, to discuss what’s driving the growth of asset-backed finance and what it could bring to a portfolio. They explore how ABF differs from traditional corporate credit, its potential role in generating income and diversification, and why underwriting and structure matter when evaluating opportunities.

The private credit universe

The private credit universe is vast, dynamic, and brimming with potential opportunities across a wide spectrum of sectors and strategies. Private credit spans everything from senior secured loans to more bespoke, opportunistic lending solutions, providing investors with a chance to participate in an array of financing scenarios globally and across sectors. Whether through direct lending, opportunistic credit, hybrid capital, real assets credit, or asset-backed finance, the private credit space offers a multitude of avenues for investors to capture potentially attractive risk-adjusted returns.

For illustrative purposes only.

Private credit explained

Brian Marcus and Alex Chi seated at a desk

Looking beyond the headlines in private credit

Alex Chi, Deputy Chief Investment Officer and Head of Direct Lending, joins Brian Marcus, Head of Cross-platform Investing within Global Credit, to discuss the themes he sees shaping today's private credit markets. He shares his perspective on portfolio fundamentals, changing lending conditions, and evaluating software businesses in an AI-driven environment. Alex also explores where he believes opportunities may be emerging across direct lending, European direct lending, opportunistic credit, and asset-backed finance.

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_{^1. There is no assurance that any portfolio construction objectives can be achieved or that any such portfolio will be profitable. Diversification does not eliminate the risk of loss.}

^{Investing in a Fund involves a high degree of risk, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. There is no assurance that any portfolio objectives can be achieved or that any such portfolio will be profitable. Diversification does not eliminate the risk of loss. The information provided herein is for educational purposes only. It does not constitute investment advice or recommendations and should not be relied upon as a basis for making an investment decision. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors.}^{Click here}^{for a copy of the Form CRS for TCG Capital Markets.}^{Click here}^{to check the background of the firm on FINRA’s Broker Check.}

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Private Credit Explained

What is private credit?

Potential portfolio benefits¹

Yield enhancement

Diversification

Reduced market volatility

Access to niche markets

Inflation hedge

At-a-glance: Private credit v. traditional bonds

Beyond traditional credit: The portfolio case for asset-backed finance

The private credit universe

Pacharbor Capital Group's four Cs of private credit underwriting

Looking beyond the headlines in private credit

Five questions about fixed income and the evolving role of asset-backed finance

Six questions for today's market

The brief case on payment-in-kind (PIK) provisions in private credit

Power up: opportunistic credit

Power up: asset-backed finance

Power up: direct lending

The state of private credit: What investors should know

Access the power of private credit