Private Credit
Last updated 17 July 2026
Private credit is lending conducted outside broadly traded public bond markets and traditional bank lending channels. Strategies include senior direct lending, asset-backed finance, real estate debt, mezzanine finance, special situations, and distressed debt. Investors may access it through closed-end funds, evergreen vehicles, separately managed accounts, or direct loans.
Borrowers often pay more than comparable public issuers because loans are less liquid, more customised, or extended to companies without easy public-market access. The additional yield is compensation for risk and complexity, not a free premium.
Why it matters for family offices
Private credit can provide contractual income and diversification from equity ownership, but outcomes depend on underwriting and recoveries when borrowers struggle. Risks include default, leverage, weak documentation, interest-rate exposure, valuation uncertainty, and illiquidity. A senior secured label does not guarantee full recovery, because collateral value and enforcement depend on the facts and jurisdiction.
Family offices examine the manager's origination, covenants, monitoring, workout capability, use of fund leverage, fees, and concentration. They also look through the portfolio for overlap with private equity, the operating business, or other credit funds. Vehicle terms determine when income and principal can actually be distributed.
How it shows up in practice
Suppose a family commits $6 million to a direct lending fund that finances mid-sized companies. The manager calls capital as loans close and reports interest income, fees, borrower values, and loan status quarterly. One borrower breaches a leverage covenant after losing a major customer. The manager amends the loan, increases pricing, and receives additional collateral, but also marks the position down based on expected recovery.
The family office records the write-down before any final default or sale, updates NAV and cash-flow expectations, and asks how much of the fund is exposed to the same industry. Income already received remains distinct from the unrealised value. This view lets the investment committee assess whether the return compensates for credit and liquidity risk rather than focusing only on the coupon.
Related terms
Direct Lending
The largest segment of private credit, in which funds or investors lend directly to companies, bypassing banks and public bond markets. Loans are typically senior, secured, and floating-rate, offering yield premiums over comparable public debt. Family offices access direct lending through funds or, increasingly, by participating directly in loans within their networks.
Fixed Income
Investments that pay a defined stream of interest, primarily government and corporate bonds. Fixed income provides portfolio stability, predictable cash flow, and a counterweight to equity risk, making it a core allocation in most family portfolios. Family offices use it to match known liabilities such as tax bills, distributions, and expected capital calls.
Alternative Investments
Asset classes outside traditional listed equities, bonds, and cash, including private equity, venture capital, private credit, hedge funds, real estate, infrastructure, and collectibles. Family offices allocate heavily to alternatives, drawn by return potential and their long-term investment horizon. Because alternatives lack daily pricing and standard statements, they demand specialised tracking and reporting.
Illiquid Assets
Assets that cannot be quickly sold at fair value, including private equity stakes, real estate, direct holdings in companies, and collectibles. Illiquid assets often make up the majority of UHNW wealth and carry return premiums precisely because capital is locked up. They also lack daily pricing and standard statements, which is why tracking them accurately is a defining challenge of family office reporting.
Private Equity
Investment in companies that are not publicly traded, typically through funds that acquire, improve, and eventually sell businesses. Private equity offers strong long-term return potential in exchange for illiquidity and long holding periods. For family offices, tracking commitments, capital calls, distributions, and valuations across many funds is a significant administrative undertaking.
Further reading
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