Key Takeaways
- Private credit is lending by non-bank investors directly to companies, lenders and asset owners, with terms negotiated privately and loans usually held to maturity.
- The market holds more than $2.2tn of assets on Preqin's measure and is forecast to reach about $4.5tn by 2030; broader definitions put it far higher.
- Direct lending is the largest strategy, but asset-based finance, mezzanine, special situations, real estate and infrastructure debt behave very differently.
- Investors are paid an illiquidity and complexity premium, and in return accept limited exits, model-based valuations and borrower-specific credit risk.
- 2025–2026 brought record defaults on Fitch's index, rising PIK use and redemption queues in semi-liquid funds, so structure, seniority and liquidity terms matter as much as yield.
A business needs £15 million to expand. Ten years ago it would have gone to its bank. Today there is a good chance the money comes from a fund, an insurer or a specialist lender instead, agreed over a few weeks and held by that lender until it is repaid. That, in a sentence, is private credit.
Private credit has moved from a corner of the market occupied by distressed debt specialists to a core holding for pension funds, insurers, family offices and, increasingly, private clients. It now sits alongside equities and bonds in many portfolios, and it attracts as much scrutiny as it does capital. The past eighteen months brought record default readings, a rise in borrowers paying interest with more debt, and queues at the exits of funds that promised quarterly liquidity.
This guide sets out what private credit is, the main strategies, how large the market is today, how investors can access it, and the risks worth understanding before committing capital.
What is private credit?
Private credit is lending provided by investors other than banks, negotiated directly between lender and borrower and not traded on a public market. The lender is typically a fund, an insurer, a business development company (BDC) or a specialist lender. The borrower might be a mid-sized company, a growth-stage business, a property developer, an infrastructure project or another lender that needs capital to make its own loans.
Three features set it apart from public bonds and syndicated loans:
- Private negotiation: pricing, security, covenants and repayment are agreed between a small number of parties, which allows terms to be tailored to the borrower and the risk.
- Hold to maturity: most loans stay with the original lender. There is little secondary trading and no daily price.
- Contractual income: returns come mainly from interest and fees written into the loan agreement, usually on a floating rate.
You will also see it called private debt, direct lending (strictly one strategy within it) or non-bank lending.
How does private credit work?
Capital is raised from investors and lent directly to borrowers. The manager originates the loan, carries out due diligence, negotiates the documents, monitors the borrower and handles any problems. Investors receive the interest, less fees.
Because the loan cannot easily be sold, investors expect to be paid more than they would earn on a comparable public bond. Part of that extra return is the illiquidity premium; part pays for the work of origination and structuring, and part is compensation for credit risk. Lenders also gain control that public bondholders lack: security over assets, financial covenants, information rights and, in some deals, a say in major decisions.
The main private credit strategies
Private credit is a family of strategies with different risk drivers. Treating it as a single asset class is one of the commonest mistakes allocators make.
| Strategy | What it finances | Typical position | What drives returns and risk |
|---|---|---|---|
| Direct lending | Mid-market companies, often private equity-backed | Senior secured or unitranche | Borrower cash flow; refinancing conditions |
| Asset-based finance | Loan books, receivables, equipment, consumer and SME loans | Senior secured against asset pools | Collateral performance; structure; servicer quality |
| Mezzanine | Companies needing capital between senior debt and equity | Subordinated, sometimes with warrants | Enterprise value; equity cushion beneath |
| Distressed and special situations | Companies under stress or in transition | Varies; often bought at a discount | Restructuring outcomes; legal process |
| Real estate debt | Property acquisition, development and refinancing | Senior or mezzanine | Property values; construction and letting risk |
| Infrastructure debt | Energy, transport, digital and social infrastructure | Mostly senior, long-dated | Contracted or regulated cash flows |
Direct lending is the largest segment, at roughly 54% of global private credit assets according to Preqin data cited by BlackRock. Asset-based finance is growing fastest. Oliver Wyman estimates a $5.5tn addressable market for private asset-based finance in the US alone, and Moody's expects it to lead the market's growth in 2026. Our investor's guide to asset-based lending covers that segment in depth.
Where a loan sits in the borrower's capital structure matters as much as the strategy label. A senior secured loan with a large equity cushion and a subordinated loan to the same company are very different risks. Our guide to the capital stack explains why.
How big is the private credit market?
Size depends on the definition. On the narrow, fund-based measure tracked by Preqin and Cliffwater, global private credit assets exceeded $2.2tn as of March 2025, with about 71% in North America, and are forecast to reach roughly $4.5tn by 2030, according to BlackRock's 2026 primer. Morgan Stanley, using a broader definition, put the market at about $3tn at the start of 2025 and projects around $5tn by 2029. Wider still, some estimates of all non-bank lending, including asset-based finance held by insurers and specialist lenders, run into tens of trillions.
The growth has come from three directions: banks stepping back from certain types of lending, borrowers who value speed and certainty, and investors seeking contractual income. We look at each of these drivers in Private Credit: Supplying the Demand.
Two figures show how mainstream the market has become. US direct lending issuance reached a record $327bn in 2025, according to Houlihan Lokey. And committed bank credit lines to private credit vehicles grew from about $8bn in 2013 to about $95bn by the end of 2024, according to the Federal Reserve. Banks are now lenders to private credit as well as competitors.
How do investors access private credit?
The route chosen decides liquidity, cost, transparency and how much of the premium the investor keeps.
| Access route | Liquidity | Typical investors | What to watch |
|---|---|---|---|
| Closed-end funds | None until the fund winds down, usually 5–8 years | Institutions, family offices | Capital calls; blind-pool risk; fees |
| Evergreen funds and non-traded BDCs | Periodic, usually capped at about 5% a quarter | Wealth and private clients | Redemption gates; cash drag; valuation policy |
| Listed BDCs and ETFs | Daily | All investors | Price swings and discounts to net asset value |
| Separate accounts and co-investments | Negotiated | Large allocators | Concentration; resources needed to monitor |
| Notes and securitised structures | Hold to maturity; some listed with an ISIN | Professional investors | Structure, seniority and the quality of the underlying assets |
Evergreen funds were the growth engine of the wealth channel until 2026 tested them. In the first quarter, investors asked to redeem 7.9% of Blackstone's BCRED, 11.2% of Apollo Debt Solutions and 21.9% of Blue Owl Credit Income Corp., among others. Most funds held to their 5% caps, as Advisor.ca reported. Daily-dealing vehicles raise their own questions, which we explore in Has Private Credit Gone Public?.
At Kingsbury & Partners we use the last route in the table. We provide senior secured facilities to specialty and non-bank lenders, structured through bankruptcy-remote credit linked note compartments of our Luxembourg vehicle and held to maturity. It is one way to access private credit among several, and it suits investors who can commit for the life of the loan.
Why investors allocate to private credit
- Income: floating-rate coupons have paid well above public credit. Median BDC loan spreads are 4 to 5 percentage points over SOFR, against about 2 points for comparable bank-held high-yield loans, according to the Federal Reserve Bank of Boston.
- Diversification: returns come from contractual cash flows, not daily market sentiment, and asset-based strategies add exposure to consumer and SME credit that public markets rarely offer.
- Protection: security, covenants and seniority give lenders tools that bondholders lack.
- Access to the real economy: much private credit finances businesses and lenders that banks and bond markets underserve, including non-bank financial institutions.
What are the risks of private credit?
The attractions come with obligations, and the past eighteen months made them visible.
- Default risk: Fitch's US private credit default rate reached a record 6.3% in the year to August 2026, as reported by Private Equity Wire. Most defaults were interest deferrals, PIK switches and distressed maturity extensions, which keep losses out of sight for longer.
- PIK interest: the share of BDC loans paying some interest in kind, by adding it to the loan balance, rose from about 6% in early 2022 to about 10% in early 2026, according to the Boston Fed.
- Liquidity risk: loans cannot be sold quickly, and fund-level liquidity can be gated when demand rises.
- Valuation risk: without market prices, managers mark loans using models, which can lag reality.
- Concentration risk: many portfolios lean on the same sectors and sponsors. The BIS estimates that software companies account for 19% of private credit funds' direct loans.
- Fraud and collateral risk: the 2025 collapses of First Brands and Tricolor, which involved opaque off-balance-sheet financing and alleged double-pledging of collateral, showed why lenders must verify assets independently, as Neuberger Berman set out.
We examine borrower-level risks in The Emerging Risks of Direct Corporate Lending.
What this means for investors
Private credit has earned its place in long-term portfolios, but the label covers very different exposures. The useful questions are specific. Which strategy, and what drives its returns? Where does the loan sit in the capital structure, and what security stands behind it? How does the vehicle handle liquidity under stress? Who verifies the collateral, and how often?
For family offices, wealth managers and private clients, the approach that has held up best is to match the vehicle to a genuine time horizon, favour seniority and security over headline yield, and spread exposure across different risk drivers, not only across different managers. Investors who can hold to maturity in well-protected structures keep the most of what the asset class pays. Those who need early exits pay for that liquidity, sometimes at the moment it is least available.
Frequently Asked Questions
What is private credit in simple terms?
Private credit is lending to companies, lenders and asset owners by investors other than banks, such as funds and insurers. Terms are negotiated privately and the loans are usually held until they are repaid.
Is private credit the same as private debt?
Yes. The two terms are used interchangeably, although direct lending is strictly one strategy within private credit.
How big is the private credit market in 2026?
Preqin data cited by BlackRock puts global private credit assets above $2.2tn, with forecasts of about $4.5tn by 2030. Broader definitions, which include more non-bank lending, produce larger figures.
Is private credit risky?
It carries credit, liquidity and valuation risk. Fitch's US private credit default rate hit a record 6.3% in August 2026, although outcomes vary widely by strategy, seniority and manager.
How can individual investors invest in private credit?
Through evergreen funds and non-traded BDCs, listed BDCs, ETFs with private credit exposure, or, for professional investors, closed-end funds and listed notes. Each route offers a different balance of liquidity, cost and premium.
What is the difference between private credit and private equity?
Private credit lends money and earns contractual interest, ranking ahead of shareholders if things go wrong. Private equity buys ownership stakes and earns returns from growth and exit values, with more upside and more risk.
