Essentials of Private Credit
Private credit funds issue corporate loans and other credit instruments that do not involve a traditional bank and are not publicly traded.
INTRODUCTION TO Private Credit
IIF CAPITAL offers eligible investors access to private credit
What You Need to Know
1: Growing Demand
As a growing and increasingly diverse set of borrowers seek flexible, tailored financing solutions beyond traditional bank lending, private credit has expanded across direct lending, asset-based finance, real estate debt, and other specialty strategies to meet a widening range of capital needs.
2:Defensive Income
Private credit investments are directly negotiated, allowing lenders to structure bespoke terms, access greater borrower information, and maintain ongoing engagement through the life of the investment. These features help support principal preservation, alongside historically attractive income premiums in private credit.
3:Core Allocation
When added to a traditional balanced portfolio of stocks and bonds, private credit can offer meaningful diversification and improve risk-return potential.
Key Segments of the Private Credit Universe
Private Corporate Credit
Privately originated and negotiated debt financing across the capital structure (includes direct lending).
Asset Based & Real Estate Credit
Loans and other credit instruments generally secured by physical and financial assets as collateral
Structured Credit
Diversified pool of income-producing assets structured to provide excess and customized risk and return.
What is Direct Lending?
Direct lending provides companies with a flexible and efficient alternative source of financing by connecting borrowers directly with private capital providers. By eliminating traditional banking intermediaries, direct lending can offer greater execution certainty, confidentiality, customized structures, and faster access to capital.
For investors, direct lending provides the opportunity to access attractive income potential, downside protection through structured lending arrangements, and potential risk-adjusted returns compared to traditional public fixed-income investments.
Direct Lending Has Delivered ~1.4x the Income Return vs. Leveraged Loans Over the Past Decade
Income Value Growth of$10,000
High Income Potential
Direct lending offers the opportunity for high income potential, driven by three key components.
Note: Direct lending connects investors directly with businesses seeking capital, reducing the need for traditional banking intermediaries. This approach has historically provided higher income potential than leveraged loans by lowering intermediary costs and offering more customized financing solutions. Over time, the additional income can compound, helping investors build stronger long-term returns.
Base Rate
The benchmark interest rate tied to a reference rate, such as the Secured Overnight Financing Rate (SOFR)
Spread
Additional interest charged above the base rate, determined by factors like the borrower’s credit worthiness, market conditions, and the specific loan terms.
Deal Fees
Fees associated with structuring and executing the loan, which contribute to income.
Downside Mitigation
Managing credit risk is at the core of successful direct lending. Rather than trading loans in public markets, private credit managers carefully originate, structure, and monitor each investment to protect investor capital. Most investments are made through senior secured loans, providing lenders with first-priority claims on company assets and cash flows. Combined with rigorous due diligence and conservative loan structures, this approach seeks to generate consistent income with strong downside protection.
Picture show Similarities Between Home Mortgages and Senior Secured Loans Income
Average Loan toValue
In direct lending, average loan to values are much lower than prior periods, providing a larger equity buffer that would need to be wiped out before our debt is impacted. By originating senior secured loans that are first in line for repayment to high‑quality businesses backed by strong institutional sponsors, managers can help mitigate risk — particularly when those loans are held in low‑leverage vehicles with matched assets and liabilities.
Direct Lending’s Strong Historical Performance
Annual Returns of Fixed Income Key Indices Ranked in Order of Performance (2016-2025)
Why Investors Allocate
Direct lending has demonstrated resilient performance across a variety of market conditions by combining attractive income potential with a strong focus on capital preservation. Most direct lending investments use floating-rate structures, which can help reduce interest rate risk, while senior secured loans provide investors with priority repayment and enhanced downside protection.
Source: Morningstar and Cliffwater (as of December 31, 2025). Performance is based on widely recognized market indices for each asset class and is provided for illustrative and comparison purposes only. Past performance does not guarantee future results. All investments involve risk, including the potential loss of capital. Index performance does not reflect the fees, expenses, leverage, or investment characteristics of an actual fund, and indices are not directly investable.
Reshaping the Risks and Returns of Traditional Portfolios with Direct Lending (10 Years)
Direct lending’s long-term track record underscores its stability during periods of market uncertainty. Over the past 20 years, the S&P 500 has posted negative returns in three years — 2008, 2018, and 2022 — and in each of those periods, direct lending outperformed both equities and leveraged loans.
Source: Bloomberg, Morningstar, and Cliffwater (December 31, 2025). Historical performance comparison based on the MSCI ACWI Index, Bloomberg Global Aggregate Bond Index, and Cliffwater Direct Lending Index. For illustrative purposes only. Past performance does not guarantee future results. Actual investment returns may vary due to fees, expenses, market conditions, and investment strategy.
Considerations Before Allocating
Successful private credit investing depends on selecting experienced managers with strong credit expertise, disciplined underwriting, and effective risk management. As private credit investments typically require a longer investment horizon, investors should consider their liquidity needs and overall portfolio strategy before allocating capital.
Frequently asked questions
What is private credit?
Private credit is a type of private market investment that involves lending directly to companies outside of traditional public bond markets or banks. It encompasses a range of strategies, including private corporate credit, where direct lending is the largest segment. Direct lending investments typically take the form of privately negotiated loans and may offer investors the potential for high income through interest payments, along with exposure to borrowers across a range of industries and economic conditions.
Why invest in private credit?
Investors may allocate to private credit for its potential to provide income, diversification, and risk mitigation features relative to traditional fixed income. Direct lending investments often feature contractual cash flows, floating interest rates, and customized loan structures, which may help mitigate interest rate risk and offer different return drivers compared with public bonds.
What do private credit managers do?
Private credit managers source, underwrite, and manage direct lending opportunities, working closely with borrowers to structure loans that align with specific risk and return objectives. They conduct credit analysis, negotiate terms, monitor borrower performance, and actively manage portfolios to help preserve capital and generate income over the life of the investment.
How do you choose a reliable private credit manager?
hoosing a private credit manager typically involves evaluating factors such as investment experience, underwriting discipline, risk management processes, and track record across market cycles. Investors may also consider the manager’s sourcing capabilities, portfolio diversification approach, and alignment of interests when assessing reliability.
How big is the private credit market?
Private corporate credit, a core segment of the private credit market, has grown significantly over time as companies seek alternative sources of financing beyond traditional banks and public debt markets. This growth has expanded the range of opportunities available to investors and positioned private credit as an increasingly important component of the broader private markets landscape.
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