Key Takeaways
- Governance in private credit works at two levels: the borrower that owes the money and the manager and structure that hold it for investors.
- Credit decisions should be made by a committee with clear authority, written records and members who can say no, with conflicted members stepping aside.
- Independent trustees, administrators, valuers and auditors check the manager's work and give investors someone acting on their behalf.
- The main conflicts in private credit sit around allocation, positions in different parts of the same capital structure, cross trades, fees and valuation.
- Yield projections are only as reliable as the structures behind them, which is why governance belongs at the centre of any assessment of risk-adjusted returns.
When a private credit deal goes wrong, the post-mortem rarely blames the yield. It finds a decision nobody challenged, a valuation nobody checked, a borrower whose board had no one independent on it, or a manager sitting on both sides of a trade. Governance is the name for the arrangements that are supposed to stop those things happening.
In public markets, some of that work is done for you by exchanges, ratings and daily prices. In private credit, investors rely far more on the people and structures between their capital and the borrower. Yield projections are only as reliable as those structures.
This guide explains what governance means in private credit, how credit committees, independent parties and conflict controls work, and what investors should check before they commit. It is a companion to our piece on transparency in private credit: transparency is what investors are told; governance is who checks it, who decides and who can act.
What is governance in private credit?
Governance in private credit is the set of decision rights, controls, independent checks and conflict policies that determine how loans are approved, monitored, valued and enforced. It operates at two levels, and investors need comfort on both.
| Level | What good governance looks like | Why it matters to investors |
|---|---|---|
| Borrower | Clear structure, independent board members, audited accounts, strong controls | Reduces the risk of fraud, mismanagement and surprises |
| Manager | A credit committee with real authority, recorded decisions, conflicts policy | Ensures loans are approved and monitored on their merits |
| Structure | Ring-fenced vehicle, independent trustee, administrator and auditor | Protects assets if the manager or originator fails |
| Valuation | Written policy, independent review, consistent methods | Keeps reported values honest, especially under stress |
Borrower governance: what lenders should look for
A lender is only as safe as the borrower's ability and willingness to pay. Governance tells you a great deal about both. The areas we focus on are:
- Clear organisational structure: defined roles, responsibilities and reporting lines, so that it is obvious who makes decisions and who answers for them.
- Independent oversight: a board or advisory committee with members who are not management or the controlling shareholder.
- Financial controls: accurate, timely reporting, segregation of duties and third-party audit.
- Compliance and ethics: anti-corruption, conflict of interest and related-party policies that are applied in practice.
- Crisis planning: contingency plans for funding stress, key-person loss and operational disruption.
The 2025 failures of First Brands and Tricolor show what happens when these are missing. Neuberger Berman's analysis notes that First Brands had no independent directors and that Tricolor's closely held ownership left little oversight. Both had their problems hidden in places lenders could not easily see.
For lenders to lenders, the borrower is itself a credit business, so the questions extend to its own underwriting, collections, servicing and data. A specialty lender with weak internal governance will pass that weakness straight through to its funders.
Credit committees: who decides, and how
Every serious private credit manager has an investment or credit committee. What matters is how it works in practice. Investors should look for:
- Clear authority: written terms of reference that say what the committee approves, what limits apply and what cannot proceed without its approval.
- Real challenge: members with the experience and standing to reject a deal, and a record showing that they sometimes do.
- Separation from origination: the people who source a deal, and are often rewarded for closing it, should not be the only voices deciding on it.
- Recusal: members with a personal or business interest in a transaction should declare it and step out of the decision.
- Written records: minutes and credit papers that set out the risks, the mitigants, any dissent and the conditions attached.
- Ongoing oversight: the committee should review performance, watchlist names, amendments and waivers after funding, as well as at approval.
At Kingsbury & Partners, every opportunity is assessed by our Credit Committee, formerly known as the Product & Risk Committee, which reviews each transaction through a governance lens. We look at the independence and effectiveness of a borrower's board or oversight bodies, the quality of its financial reporting, the strength of its compliance and risk controls, and its ability and willingness to adapt as it grows. Our earlier article on balancing innovation and risk management introduces the committee.
Independent oversight: trustees, administrators, valuers and auditors
Committees sit inside the manager. Independent parties sit outside it, and they are what give investors protection that does not depend on trusting one firm.
- Trustee or security agent: holds the security for investors and can enforce on their behalf if the borrower or issuer defaults.
- Independent administrator: keeps the vehicle's books, calculates payments and produces reports.
- Paying agent: receives cash and distributes it in the order set out in the documents.
- Valuer: reviews or produces the marks on illiquid loans, which matters because valuation drives fees and reported performance.
- Auditor: gives an annual independent opinion on the accounts.
- Independent directors: in a securitisation vehicle, directors who are not employed by the originator help keep the vehicle bankruptcy remote.
The Financial Stability Board's May 2026 report on private credit acknowledges that independent valuers, oversight committees and auditors help, while warning that income-based valuation still leaves managers significant discretion. Independence reduces the risk, and investors still need to look.
Conflicts of interest in private credit
Conflicts are unavoidable in a business where one firm may manage several funds, lend at different levels of a capital structure and earn fees at every stage. Good governance identifies them, discloses them and manages them by rule. The most common are:
- Allocation: deciding which fund, account or affiliate gets a scarce deal, and on what basis.
- Capital structure: holding senior debt in one vehicle and junior debt or equity in another, so that the manager's interests diverge in a restructuring.
- Cross trades: moving loans between funds or affiliates, where the price can favour one set of investors over another.
- Fees: origination, arrangement and monitoring fees that the manager keeps rather than sharing with investors.
- Valuation: marks that drive the manager's fees, performance figures and fundraising.
ACA Group's 2026 review of private credit conflicts covers each of these, and the FSB has flagged the potential for conflicts where managers run private equity and private credit under one roof. Investors should ask to see the conflicts policy, the allocation policy and a record of how recent conflicts were handled.
Why governance drives risk-adjusted returns
Governance rarely shows up in the headline yield. It shows up in what happens when something goes wrong: how early the problem is found, who has the authority to act and whether the structure protects investors while it is fixed.
Two loans can carry the same coupon and very different risks. One is approved by a committee that challenged the numbers, secured through a ring-fenced vehicle with an independent trustee and monitored monthly. The other was waved through by the originating team and valued by the people paid on its performance. Over a full cycle, the first will usually deliver the better risk-adjusted return, because its losses are smaller and its recoveries faster.
Alignment matters too. A manager that holds its loans to maturity, as in an "originate and hold" approach, lives with the consequences of its own credit decisions. That is a governance feature as much as an investment one. Our approach, which we describe as "protection by design", rests on building those controls into the structure from the start.
Questions to ask about governance before investing
- Who sits on the credit committee, what can it approve and when did it last decline a deal?
- How are conflicted members handled, and how are scarce deals allocated?
- Who holds the security, and is the trustee independent of the manager?
- Who values the assets, how often, and is there independent review?
- Is the vehicle ring-fenced and bankruptcy remote, and who are its directors?
- What does the borrower's board look like, and who audits its accounts?
What this means for investors
Governance is the part of private credit that does the work when markets turn. For family offices, wealth managers and private clients, it deserves the same attention as yield, security and position in the capital stack.
The practical test is simple. Can you see who made the decision, who checks it, who acts for you if it goes wrong and how the manager handles its own interests? If the answers are clear and documented, the structure is doing its job. If they are vague, the yield is carrying risks it does not show. For what you should then expect to receive once invested, see our guide to private credit transparency and reporting.
Frequently Asked Questions
What is governance in private credit?
It is the system of decision-making, controls, independent oversight and conflict management that decides how private loans are approved, monitored, valued and enforced, at both the borrower and the manager level.
What does a credit committee do in private credit?
It approves or rejects lending decisions against a written mandate and limits, sets conditions on approvals and oversees loans after funding, including amendments, waivers and problem credits.
Why do independent trustees matter in private credit?
A trustee holds the security on behalf of investors and can enforce it if the borrower or issuer defaults, giving investors protection that does not depend on the manager.
What are the main conflicts of interest in private credit?
Deal allocation between funds, holding different positions in the same borrower's capital structure, cross trades between vehicles, retained fees and the manager's influence over valuations.
How does governance affect returns in private credit?
Good governance reduces losses and speeds up recoveries by catching problems early and giving investors clear rights, which improves returns relative to the risk taken.
What is the difference between governance and transparency in private credit?
Transparency is the information investors receive; governance is the structure of oversight that decides, checks and acts on that information.
