Higher yields, less liquidity. Here’s what investors need to know before adding private credit to a portfolio.
By Michael Christian, CFA®, CAIA® EverPar Advisors
You’ve probably seen private credit in the headlines lately. It’s been a hot topic, and we’ve been getting more questions about it from clients. So I sat down with David Ellis, our Director of Investments, to get into the details. What is it, how does it work, and should it have a place in your portfolio? I’ll let him explain it in his own words.
So What Exactly is Private Credit?
I asked David to start from scratch, as if we were explaining it to someone who’d never heard the term.
“Think of it this way,” he said. “Everybody associates credit with banks. A company needs money, they go to a bank, they get a loan. Private credit is essentially a private lender stepping in and making that loan instead of the bank.”
The space really took off after the 2008 global financial crisis. New regulations required banks to hold more capital against the loans they were issuing. A lot of them stepped back. And when banks step back, someone else steps in. That’s where private credit managers found their footing, and they’ve been growing ever since.
Source: https://www.congress.gov/crs-product/IF12642
Who’s Actually Borrowing Through Private Credit?
I followed up by asking David what kinds of companies are on the other end of these loans.
“It runs the spectrum,” he said. “Midsize companies, large cap, ultra large cap. Any company that needs funding and wants to avoid the bank process.”
The appeal to borrowers is speed and flexibility. Bank loans mean paperwork, regulatory filings, and a long approval process. Private lenders can move faster. Companies pay a higher interest rate for that, but a lot of them are willing to. Getting access to capital quickly can be worth the premium, especially if the bank wouldn’t have approved them in the first place.
How We Evaluate Private Credit Managers
Not all private credit managers are created equal, and this is an area where our investment committee spends a lot of time. David walked me through what we look for.
Experience through multiple cycles is the first thing. Have they been through a period where fixed income markets got stressed? How did they handle it? Were they able to restructure loans and avoid defaults, or did things fall apart when the going got tough?
The second thing is underwriting quality. “What we’re finding,” David said, “is that private credit lenders tend to go deeper on underwriting than banks do. The covenants are tighter. That protects the investor.” We look closely at the structure of the loans before we make a decision on a manager.
What Clients Can Expect
The question we hear most often is: if I can get yield from public bonds, why bother with private credit? David’s answer is pretty straightforward.
You get paid more. Historically, private credit has generated returns roughly 2% to 3% higher than comparable public credit. Right now in 2026, the yields you can expect to see are around 9%. Last year it was closer to 10%, and rates have come down a bit. But even if rates dropped dramatically to the lows we saw in the past, David’s view is that these funds would still be yielding around 7%. Public fixed income won’t be anywhere near that in that environment.
Source: https://www.northleafcapital.com/news/private-credit-market-update-q1-2026
²https://www.northleafcapital.com/news/private-credit-market-update-q1-2026
The tradeoff is liquidity. This is the part of the conversation that matters most for clients.
With public bonds, you can sell and have your money back in a couple of days. Private credit doesn’t work that way. These funds typically allow quarterly redemptions equal to about 5% of the fund’s value. So if you need your money and a lot of other investors want out at the same time, you might not get everything back in one quarter. It could take a few quarters.
You’re being compensated for that illiquidity. That’s the trade. If your client accepts it going in, it usually works well. If they don’t, private credit is the wrong fit.
²https://www.congress.gov/crs-product/IF12642
When Private Credit Isn’t the Right Fit
I asked David directly: who shouldn’t be in this space?
His answer was clear. If you might need that money within the next 18 months to two years, don’t do it. Many of these funds have a one-year lock where you’re simply not getting out early. And if you do exit before the lock period ends, there’s a penalty.
The second type of client who shouldn’t be here is someone who needs to check their account value every day. These funds price once a month. If a client calls us every week asking what their position is worth, that’s going to be a frustrating experience for everyone.
The Tax Picture
There’s no special tax treatment here. The income from private credit funds comes through as interest income, which means ordinary income tax rates. Most funds pay monthly, some quarterly.
Because of that, where we hold private credit matters. For clients who are using it for stability and yield rather than income they need right now, we’ll often place those assets inside an IRA. That way they’re not taking a tax hit every year on the distributions. It’s very client-specific. We look at the full picture before we decide where it sits in the portfolio.
What’s Behind All the Headlines
I wanted to end by asking David about the recent news around private credit, because clients have been bringing it up.
The concern started when a major AI coding tool came out and rattled confidence in software companies. Private credit portfolios often hold 15% to 20% in software company loans. These were considered safe bets because software businesses generate recurring subscription revenue, which makes them attractive to underwriters. When people started questioning whether AI would make those businesses obsolete, panic set in. Some investors rushed to withdraw, requesting more than the standard 5% quarterly limit. They got prorated and had to wait for the next quarter to get the rest.
David’s read on it is measured. “We’re still seeing revenue growth in those companies. We’re not seeing the AI disruption materialize in the loan data yet.” He also pointed to something I thought was worth highlighting: a large private credit lender recently sold about $1.5 billion worth of loans from their portfolio. The buyers were major pension funds in North America, some of the more sophisticated institutional investors out there. They paid 99.70 cents on the dollar. Basically par.
That says something. If the underlying loans were genuinely at risk, sophisticated pension funds don’t buy them at cost. They believe the underwriting holds up, and they’re not concerned about these companies defaulting before the loans mature.
Our view is that the media narrative got ahead of the facts. It usually does.
https://finance.yahoo.com/news/certain-blue-owl-bdcs-sell-211400537.html
The Bottom Line
Private credit is a real option for clients who need more income than public bonds can provide today, and who can accept the tradeoff of less liquidity. It’s not right for everyone. But for the right client, it earns its place in a portfolio.
If you want to talk through whether this makes sense for your situation, reach out to us directly.
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