Introduction
Private credit has been quietly moving from a niche investment strategy for institutions into a growing pillar of alternative investments for sophisticated individuals. In the last decade, it has become a serious contender for those looking to diversify beyond public equities and bonds. As someone who has spent years shifting my focus toward structured capital and long-term wealth building, I see private credit as one of the most underutilized tools in the investment landscape.
This article will break down what private credit is, why it’s gaining so much attention, its advantages and risks, and how it can be incorporated into a balanced portfolio.
Understanding Private Credit
At its core, private credit refers to debt financing provided by non-bank lenders to private companies. These loans are not traded on public markets and are typically negotiated directly between lender and borrower. They can be secured by collateral, structured with specific repayment terms, and designed to fit the needs of both parties.
Private credit is often used by businesses that:
- Want more flexible terms than traditional bank loans allow
- Operate in sectors where speed and customization matter
- Seek capital for expansion, acquisitions, or restructuring
For the investor, this creates opportunities to earn attractive, contractual returns that are often less correlated with public market volatility.
This momentum is reflected in our recent $10M strategic funding round with CLS Capital – read the full press release here.
A Brief History and Why It’s Growing
Historically, private credit was the domain of large institutions—pension funds, insurance companies, and specialized asset managers. Following the 2008 financial crisis, regulatory changes tightened bank lending requirements. That created a financing gap, and private credit lenders stepped in to meet the demand.
Fast forward to today:
- Global private credit assets under management have grown from under $300 billion in 2010 to over $1.5 trillion.
- Institutional demand remains strong, but individual investors are now gaining access through funds, syndications, and direct deals.
Key Types of Private Credit
Not all private credit is the same. Common categories include:
- Direct Lending – Loans to mid-sized companies, often secured by assets or cash flow.
- Mezzanine Financing – Hybrid debt/equity instruments with higher yields and subordinated repayment.
- Distressed Debt – Purchasing debt of companies in financial trouble, aiming for restructuring gains.
- Special Situations – Opportunistic lending tied to unique market conditions.
- Real Estate Debt – Lending secured by property assets, such as bridge loans or construction financing.
Why Investors Are Paying Attention
From my perspective, private credit stands out for three main reasons:
- Predictable Cash Flow
Payments are contractual and typically made monthly or quarterly, making it easier to plan and allocate returns. - Attractive Yield
Returns often exceed those of traditional bonds, reflecting the premium for lower liquidity and customized deal structures. - Lower Correlation
Private credit performance is less tied to daily swings in public equities, which can help smooth portfolio returns during market volatility.
Risks and How to Manage Them
Like any investment, private credit carries risks. The key is understanding them and structuring deals accordingly.
- Credit Risk – The borrower could default. Mitigation: due diligence, collateral, covenants.
- Liquidity Risk – Private credit is typically illiquid until maturity. Mitigation: only allocate capital you can commit for the term.
- Market/Interest Rate Risk – Rising rates can impact valuations. Mitigation: favor floating rate structures when appropriate.
One of the biggest mistakes I see is chasing yield without assessing the underlying borrower’s fundamentals. For me, the deal must fit my investment thesis and risk tolerance, not just my return target.
The Role of Private Credit in a Portfolio
I treat private credit as a foundational, income-generating allocation within a broader investment strategy. It’s not a replacement for all other asset classes, but a complement that can:
- Anchor stability in volatile markets
- Generate steady income streams
- Free up other parts of the portfolio for higher-risk, higher-growth opportunities
When used strategically, private credit can also support impact investing—funding businesses and projects aligned with your values.
A Personal Perspective
When I moved my focus from high-growth industries like e-commerce to structured, long-term investing, private credit was the piece that tied it all together. I wanted a strategy that:
- Generated consistent returns
- Allowed me to control terms and conditions
- Could weather market cycles without constant monitoring
Operating from Montana, away from the noise of financial hubs, has given me the clarity to focus on principle-driven investing. Private credit fits that mindset perfectly—it’s deliberate, disciplined, and adaptable.
Comparing Private Credit to Traditional Investments
| Feature | Private Credit | Bonds | Stocks |
|---|---|---|---|
| Return Potential | Moderate to High | Low to Moderate | Variable (can be high or low) |
| Volatility | Low to Moderate | Low | High |
| Liquidity | Low (illiquid until maturity) | High (publicly traded) | High |
| Customization | High | Low | Low |
| Correlation to Equities | Low | Moderate | High |
Is Private Credit Right for You?
Private credit isn’t for everyone. It’s best suited for investors who:
- Can commit capital for the term of the loan
- Are comfortable with a measured risk/return profile
- Want to diversify income sources
- Value control and customization in their investments
If that sounds like you, it’s worth exploring. Start by learning, connecting with credible managers, and reviewing historical performance.
Final Thoughts
Private credit is no longer an obscure corner of institutional finance—it’s a growing opportunity for investors seeking steady, resilient returns. With the right structure, due diligence, and alignment of incentives, it can become a cornerstone of a long-term wealth strategy.
As with any investment, success comes from clarity: knowing your goals, understanding the mechanics, and only committing to what aligns with your financial vision. In my experience, private credit delivers best when it’s part of a deliberate, well-structured plan.
For more insights on how I incorporate private credit into my investment framework, visit my About page or explore other articles in the Investments category.
Stuart Simonsen
Stuart Simonsen
