A private credit fund is the vehicle through which most private credit is provided: a fund that pools capital from investors and uses it to make or buy loans that are negotiated privately rather than issued in public markets or held by banks. The main entry covers the asset class, its growth and its risks.
The fund is the legal and commercial structure. Most are closed-ended limited partnerships of the kind used in private equity: investors make a limited partner commitment, capital is drawn as loans are made, and interest and repayments are passed back through a distribution waterfall, with the manager earning a management fee and a share of returns above a preferred return. Others are open-ended or semi-liquid vehicles that accept periodic subscriptions and limit redemptions, including the business development companies used in the United States and interval or evergreen funds aimed at wealthy individuals.
Strategies range from senior direct lending to mid-sized companies, through mezzanine and distressed debt, to asset-based and real estate lending. Many funds borrow against their loan portfolios to raise returns. Because the loans are illiquid and valued by models rather than market prices, regulators have paid growing attention to valuation practices, leverage and the links between these funds and banks and insurers.