Private Credit and Direct Lending for HNW Investors

Private credit — the provision of loans and other debt instruments directly to companies and borrowers outside the traditional banking system — has grown from a niche institutional strategy into one of the most significant alternative asset classes in global finance. Assets under management in private credit strategies have grown from approximately USD 500 billion in 2015 to over USD 1.7 trillion as of 2026, driven by tighter bank regulation, rising interest rates, and institutional demand for higher yields and floating-rate income.

For high-net-worth investors, private credit offers exposure to a genuine source of return — the illiquidity premium and credit risk premium embedded in private loans — that is distinct from public equity and bond market returns. In an environment where public market valuations remain elevated, private credit's combination of floating-rate income, senior secured claims, and diversified exposure to corporate credit across sectors and geographies has attracted growing allocations from family offices and HNW portfolios globally.

This guide explains what private credit is, the main strategy types, the risk-return characteristics, how HNW investors can access the asset class, and what due diligence is required before committing capital. As always, private credit investments are complex, typically illiquid, and not suitable for all investors. Professional advice should be sought before investing.

What Is Private Credit?

Private credit encompasses all forms of debt financing to companies, real estate projects, or infrastructure assets that occur outside publicly traded bond or loan markets. Unlike public bonds (listed on exchanges, tradeable daily) or syndicated loans (distributed by banks to many institutional holders), private credit is negotiated bilaterally or in small syndicates, with terms customised to the specific borrower and transaction.

The term covers a wide range of strategies:

• Direct lending: Senior secured loans to middle-market companies, typically priced at floating rates (SONIA + a spread, or SOFR + a spread in USD markets). This is the most common and accessible form of private credit for institutional and HNW investors.
• Mezzanine financing: Subordinated debt between senior loans and equity in a company's capital structure. Higher return than senior loans but with greater risk.
• Unitranche lending: A single-tranche loan blending senior and subordinated pricing, increasingly common for LBO financing.
• Real estate debt: Senior or mezzanine loans secured against commercial or residential real estate.
• Infrastructure debt: Long-duration loans to infrastructure projects (renewable energy, toll roads, airports), often inflation-linked and investment-grade.
• Distressed debt: Purchasing loans or bonds of companies in financial difficulty, with the aim of profiting from a restructuring or recovery.
• Specialty finance: Consumer loans, trade receivables, insurance-linked securities, and other structured credit strategies.

The defining characteristics of private credit across all these forms are: bilateral or small-syndicate negotiation, customised terms, limited secondary market trading (hence illiquidity), and typically higher yields than comparable public market debt.

Why Private Credit Has Grown

The growth of private credit is principally explained by two structural forces:

Banking regulation: Post-2008 regulation (Basel III, Dodd-Frank, and European equivalents) significantly increased the capital cost for banks of holding certain loans — particularly middle-market corporate loans, real estate loans above certain LTV ratios, and leveraged buyout financing. Banks retreated from these markets, creating a gap that private credit funds have filled.

Investor demand for yield: A decade of near-zero interest rates drove institutional and HNW investors up the risk and illiquidity spectrum in search of acceptable returns. Private credit, offering spreads of 5–8% over base rates during the low-rate period, became an attractive substitute for public investment-grade bonds. With base rates now at more normal levels (2–4% in Europe and the UK, 4–5% in the US as of 2026), private credit returns of SONIA/SOFR + 5–8% translate into gross all-in yields of 7–12% — attractive income in absolute terms.

The Main Strategies for HNW Investors

Direct Lending

Direct lending — providing senior secured floating-rate loans to mid-market companies (typically with EBITDA of £20–500 million) — is the most established and best-understood private credit strategy for institutional and HNW investors.

These loans:

• Are secured against the company's assets (first claim in insolvency)
• Price at floating rates (SONIA/SOFR + a spread), protecting income from inflation
• Typically carry strong covenants (maintenance covenants requiring the borrower to maintain specific financial ratios)
• Have maturities of 4–7 years
• Are originated and managed by specialist alternative asset managers (Ares, Apollo, Blackstone, Intermediate Capital Group, HPS, Blue Owl, and many others)

The historical loss rate on senior secured direct lending has been relatively low — the secured, covenant-protected structure provides strong recovery in default events, compared with unsecured or public debt. However, this record has been established largely in a favourable credit cycle; the higher interest rate environment of 2022–2026 has created stress for highly leveraged borrowers, and default rates have increased from historical lows.

Expected returns for direct lending strategies (net of fees) have typically been 7–10% in recent years. Management fees of 1.0–1.75% and carried interest of 10–15% are typical.

Infrastructure Debt

Infrastructure debt — long-duration loans to critical infrastructure assets — offers some of the most attractive risk-adjusted returns available in private credit, particularly for investors seeking inflation-linked income.

Infrastructure loans to airports, renewable energy projects, regulated utilities, toll roads, and ports are typically:

• Long-duration (15–30 years)
• Backed by predictable, inflation-linked contracted revenues
• Investment-grade rated (BBB or above)
• Secured against tangible, difficult-to-replicate assets

For investors seeking predictable, inflation-protected income over long periods — particularly in liability-matching contexts — infrastructure debt is a high-quality allocation. Returns are typically 5–8% all-in yield, lower than more aggressive credit strategies but with materially lower default risk.

Real Estate Debt

Real estate debt funds provide senior or mezzanine loans secured against commercial or residential property. As banks have reduced real estate lending (particularly for development financing, value-add projects, and commercial property in uncertain markets), specialist private debt managers have filled the gap.

Senior real estate debt (60–65% loan-to-value) provides robust collateral cover; mezzanine real estate debt (65–80% LTV) offers higher yields but with meaningful subordination. The UK, European, and Australian commercial real estate markets have seen significant repricing since 2022, providing both challenges (rising defaults on bridge loans and development finance) and opportunities (new lending at attractive rates to well-capitalised sponsors).

Accessing Private Credit as an HNW Investor

Closed-End Private Credit Funds

The most common access route. Closed-end funds typically:

• Have minimum commitments of USD 250,000–1 million for HNW investors (higher for institutional mandates)
• Are offered to sophisticated or professional investors only
• Have 5–7 year fund lives with 2–3 year deployment periods
• Return capital as loans are repaid over the fund life
• Charge management fees plus carried interest

Leading managers include Ares Capital, Apollo Global Management, Intermediate Capital Group, HPS Investment Partners, Blue Owl, Oaktree Capital, and many regional specialists.

Evergreen or Perpetual Vehicles

An increasing number of private credit managers offer "evergreen" or perpetual structures — open-ended or semi-liquid funds with quarterly redemption windows (subject to gating if redemptions exceed available liquidity). These provide more flexibility than traditional closed-end funds but carry the risk of gates in stress periods.

Examples include non-traded BDCs (Business Development Companies) in the US, and semi-liquid UCITS-compliant structures in Europe. These are generally more accessible (lower minimums) but may not achieve the same return quality as traditional closed-end formats.

Listed Vehicles

Several private credit strategies are listed on major stock exchanges:

• Business Development Companies (BDCs) listed on US exchanges (Ares Capital Corporation, Blue Owl Capital Corporation)
• UK investment trusts with private credit mandates (TwentyFour Income Fund, Cheyne Capital vehicles)
• Listed CLO equity and debt

These provide daily liquidity but at the cost of added NAV discount/premium volatility. During credit market stress, listed private credit vehicles can trade at large discounts to NAV, amplifying losses even when the underlying portfolio performs.

Risk Considerations

Illiquidity

Private credit funds do not offer daily liquidity. Capital committed to a closed-end fund is locked up for the fund's life; even evergreen vehicles may impose gates or restrict redemptions during stress periods. Investors must have a genuine long-term horizon and sufficient liquid assets to meet unexpected cash needs without accessing their private credit allocation.

Credit Risk

Private loans can and do default. The higher interest rate environment of 2022–2026 has increased the debt service burden on highly leveraged borrowers. Default rates in leveraged loans and direct lending have risen from historic lows, though senior secured recovery rates have generally been robust. Investors should expect credit losses and assess the manager's underwriting discipline and historical default track record.

Manager Risk

The quality of private credit managers varies widely. Underwriting standards, portfolio construction discipline, workout capability (managing defaulted loans through restructuring), and fee structures differ significantly. Due diligence on the manager is as important as evaluating the strategy itself.

Concentration and Vintage Risk

Concentrated exposure to a single vintage (a fund raised in 2021 at peak leverage and low yields may face different challenges than a 2023 fund raised in a tighter credit environment) or a single sector (real estate or energy, for example) can significantly affect outcomes.

Tax Treatment

Private credit income — interest and dividends from BDCs or investment trusts — is typically taxed as income rather than as capital gain in most jurisdictions. For UK investors, income is taxed at marginal income tax rates (up to 45%); using an ISA, SIPP, or offshore bond wrapper can significantly improve net-of-tax returns. For US investors, BDC dividends may qualify for pass-through deduction treatment in certain structures.

International investors should take jurisdiction-specific advice on withholding taxes, treaty relief, and the treatment of distributions from different private credit fund structures.

How Global Investments Can Help

Private credit has become an important and growing component of HNW and family office portfolios — but navigating the manager landscape, evaluating credit quality, structuring investments tax-efficiently, and integrating private credit within a broader portfolio requires significant expertise.

At Global Investments, we help clients assess whether private credit is appropriate for their circumstances, identify managers with the strongest risk-adjusted track records and the best governance standards, and structure investments to maximise after-tax income. We consider private credit as part of an integrated alternative allocation alongside private equity, infrastructure, and real assets.

This article reflects information available as of 2026. Private credit markets, interest rates, and regulatory frameworks change continuously. Nothing here constitutes personal financial advice. Private credit investments are complex and illiquid, and you may lose some or all of your capital. Seek professional advice before investing.