Private Credit is a large and growing category in the private market investing landscape. With exits harder to come by lately, more companies are adding debt to their capital structure (for several reasons that include avoiding direct dilution of equity). The dramatic increase in importance of private credit to the funding of companies has also led to a proliferation of funding vehicles that investors might participate in. New managers are popping up almost daily, and new vehicle types are emerging too. Co-investments, drawdown funds, public BDCs, private BDCs, and now Interval Funds are all seeing growth. These vehicles are making it easier for retail investors to include private credit in their portfolios.
In the broader credit markets, several trends are unfolding that could have a negative impact on some parts of Private Credit.
First, base rates are falling. The Fed has now lowered the overnight rate, as it should, to remove us from a restrictive stance. Many private credit strategies use floating rate loans, so falling rates will naturally lower yields. Investors should keep in mind that their return is a combination of the yield and the always changing price. Minor fluctuations in price are normal, and investors can expect yields to be lower in 2026 than they were in 2025. The long end of the yield curve is falling too, as the Fed ends quantitative tightening (no longer dumping bonds on the market to decrease its balance sheet, which was draining liquidity out of the system). We are also near a multi-year low point for credit spreads, reflecting that investors are getting paid less to take credit risk.
The combination of new money coming into Private Credit, along with a changing rate structure and price for credit risk, will certainly influence Private Credit in the larger sense. But the devil is in the details, and broad pronouncements that read something like “private credit is in trouble” are not accurate, not helpful, and outright confusing to our clients.
At BIP, we believed this would eventually happen, and we welcome the market pressure. It’s our chance to prove we know what we’re doing. This is the perfect time to show how real knowledge is so much more valuable than just knowing the headlines. Our clients are counting on us at BIP Wealth to get this right. And we have already done our homework to make sure we have a variety of evergreen strategies that we expect to do well in a variety of economic conditions.
Here are several important ideas you should know:
1. Recent headlines about private credit BDCs getting into trouble are referring to publicly traded BDCs and not the privately traded BDCs that BIP Wealth presents to our clients.
Business Development Companies are entities that meet certain regulatory requirements created in 1980 and are close-end funds that distribute 90% of income. We track about 3 dozen publicly traded BDCs, and 2025 returns through 12/31/25 range from +16.75% to -27.38%, with more in negative territory than positive. This is markedly different from the returns we are seeing in the vehicles we’re using, and you may notice that few survived the pullback in credit markets during 2022 unscathed.
2. These publicly traded BDCs that we don’t own often trade in BSLs (Broadly Syndicated Loans), which BIP’s strategies almost completely avoid.
BSLs tend to be of lower quality and lack the covenants and remedies that are the hallmark of our strategies. BSLs are originated by banks, securitized, and then traded daily. Some might equate this to juggling chainsaws when credit markets turn sour—you want to drop them as quickly as you can to avoid getting your hand cut off.
3. The privately traded BDCs that BIP uses have several commonalities:
- Our strategies invest almost entirely in Senior Secured Loans. Not subordinated debt, not mezzanine debt, not BSLs. Instead, their lending is usually at the top of the capital stack on the balance sheet of the borrowers. In other words, the borrowers must pay our loans first, above almost all other obligations.
- Our strategies are lending a large proportion of their funds to borrowers who are also supported by private equity funds. These private equity managers give an equity cushion that can often be expanded during times of financial stress (through loan covenants) to increase the safety of the loans when needed. Covenants may compel the PE sponsors to add more cash to the balance sheet or take other measures to protect the security of the loans.
- Our strategies are mostly floating rate loans. This provides a consistent cushion of 500-600 bps above the returns of low-risk public market fixed income alternatives. In the current environment, rates are falling, which lowers lending returns but also lowers the cost of leverage experienced by these strategies, avoiding a rate mis-match problem that banks have been dealing with forever (and not very successfully in 2022 when banks invested in long-term low rate Treasurys while having to pay out high rates to their depositors)!
- Our strategies were selected for their market discipline and are not chasing returns by deviating from their target market. Some target smaller companies and some target larger companies, but there is no evidence of our strategies having to corrupt their mandates to invest money, or of them accepting inadequate terms from borrowers.
- The manufacturers we have chosen usually originate the deals they invest in, or are a part of a small group that originates the deals. This is very different from the BSL market. This allows them to have a deep understanding of each borrower’s risk profile and business strategy.
- Leverage is limited. BDCs can borrow money to amplify returns, which is generally good for investors. But in the range of what is allowed (borrowing $2 for every $1 of investor equity), ours are pretty tame. This allowable amount of leverage is double what was allowed until 2018, but only the riskier strategies that we have not chosen are that leveraged. Interval funds are only allowed $.5 of leverage, so the new interval fund choices are even less exposed to the math of leverage if prices were to fall.
- Most of our BDCs are highly diversified, owning hundreds of loans with very small exposure to even their largest positions. This diversification is often a key way to control risk to the investor.
4. We also invest in individual deals, or “co-investments.”
These are, by nature, not diversified. But here again, the details are important. Many are convertible notes, which in reality are equity deals that pay a yield to the investor and sit above other equity investments in terms of their priority. We have a long history of enjoying some of our best equity returns from these investments.
5. By offering several carefully selected managers that are working at what we believe is the safer end of the private credit markets, we are in the enviable position of being able to stand back and watch what happens to the rest of the market if things turn sour.
We expect to be able to prove to our clients that your trust in us is warranted. But this comes with the obligation to explain our prudent process in a world of scary headlines. If the risky end of the private credit market does start to experience significant stress, some of our clients may become concerned.
If you would like to learn more about our Private Credit strategies and if they might be a fit for you, the BIP Wealth team is here to help. Contact us today to be connected with a trusted advisor.
This post is provided for informational purposes only. Specific investments may not be suitable for all investors and no offer or recommendation of any investment or investing strategy is intended or implied by your choosing to read this post. Privately traded offerings may only be available to investors who meet certain qualification statuses.
This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict the performance of any investment. Past performance is no guarantee of future results. All investments involve risks including loss of principal.
