In recent years, private credit has emerged as one of the fastest-growing segments in alternative investing. With more than $1.6 trillion in assets under management globally and projections of surpassing $3.5 trillion by 2028, private credit’s momentum shows no signs of slowing.

As traditional banks retreat from corporate lending due to high interest rates, alternative lenders, like credit funds and private lenders, have stepped in to fill the void. The result? A new marketplace rich with opportunity, where capital can be deployed into customized lending structures that boast potentially attractive return profiles.

In this guide,we will walk you through the basics of private credit investing, highlight strategic opportunities in the space, and explore how HUDSONPOINT capital helps investors access this evolving market.

What Is Private Credit?

Private credit, also known as alternative lending, refers to loans and debt investments made by non-bank financial institutions to private borrowers. These borrowers—typically small tomid-sized businesses, real estate sponsors, or developers—turn to private credit when traditional bank loans or public bonds no longer meet their needs.

Unlike public debt, which is standardized,and heavily regulated, private credit is privately negotiated and customized to match the borrower’s unique needs and risk tolerances. Loans are frequently floating-rate and structured with strong covenants to protect investors.

Private credit typically serves middle-market companies with annual EBITDA between $25 million and $75 million.In other words, private lending is too big for small business loans, but not quite big enough for public bond issuance.

Borrowers include private equity portfolio companies, real estate sponsors, and real estate or infrastructure developers looking for more flexible and faster capital than what banks can typically provide.

Private Credit vs. Private Equity

The key difference lies in structure: private credit involves lending (debt) while private equity involves ownership(equity). Investors in private credit earn interest income, while private equity investors earn returns through company appreciation and eventual exits.

Why Private Credit Is Growing

The expansion of the private credit industry has been nothing short of dramatic. As Deutsche Bank notes, the new post-pandemic lending ecosystem has ushered in a “golden age of private credit.” Several key forces are driving the current growth:

●    Post-2008 banking regulation: Stricter capital requirements have pushed banks to limit lending, creating opportunities for non-bank lenders.

●    Investor demand for yield: Amidst a low-interest-rate environment, institutional investors (e.g., pension funds,family offices) sought higher returns than what traditional fixed income could offer.

●    Borrower flexibility: For companies thatneed capital quickly or on flexible terms, private credit provides access totailored lending structures that banks often cannot match.

●    Bank synergies: More traditional banks are partnering with private credit platforms to offload risk via synthetic risk transfers (SRTs) or co-lending arrangements. This trend has only accelerated with proposals for Basel III Endgame rules, which increase capital requirements for banks holding riskier assets.

Benefits of Private Credit Investing

Although private credit typically comes with multi-year lockup periods and lower liquidity, it also comes with distinctive benefits that make it increasingly appealing to investors:

●    Higher Yields: Private credit typically includes an illiquidity premium, often offering spreads of 250–400 basis points above public market debt.

●    Steady Income: Most strategies generate recurring cash flows via interest payments and fees, ideal for income-focused portfolios.

●    Diversification: With low correlation to public equity and bond markets, private credit can smooth volatility and reduce overall portfolio risk.

●    Inflation Protection: Many loans are floating rate, which means they reset with rising interest rates, helping preserve real returns.

●    Downside Protection: Private credit loans are often senior secured and collateralized, giving investors first claim priority in case of borrower default.

●    Custom Structures: Deals can be negotiated directly, allowing for bespoke terms, tight covenants, and aligned risk-return preferences.

Private Credit Investment Strategies

HUDSONPOINT capital offers access to awide array of private credit strategies, each catering to different investor goals and risk tolerances:

Direct Lending

Direct lending is a relationship-driven strategy where investors provide senior secured loans directly to businesses. This approach typically includes highly negotiated terms like tight covenants, call protections, and prepayment penalties, which offer downside protection.

●    Senior secured loans made directly to private companies

●    Offer predictable returns with first-lien protections

●    Often blends senior and mezzanine features into a single facility

●    Typically focused on middle-market borrowers with $25M–$75M EBITDA

●    For investors who want predictable, secure returns with flexible terms

Mezzanine Debt

Mezzanine debt is a hybrid form of financing that sits between senior debt and equity in the capital stack. This type of debt often includes warrants or equity kickers that allow lenders to share in the upside potential of the borrower’s success.

●    Hybrid debt/equity capital placed below senior debt in the capital stack

●    Often includes warrants or equity kickers to boost returns

●    For investors with higher return targets and a higher risk tolerance

Real Estate Debt

Real estate debt investments involve lending against commercial or residential properties, combining the security of real estate with the potential for steady income. This strategy can offer stable income through interest payments while adding diversification to your portfolio.

●    Loans secured by commercial or residential real estate

●    Combines stable income with asset-backed protection

●    For investors seeking hard-asset exposure without direct property ownership

Distressed Debt

Investing in distressed debt involves purchasing the debt of companies facing financial difficulty or undergoing restructuring. These investments are typically made at steep discounts to parvalue, creating significant upside potential if the company recovers.

●    Investments in the debt of distressed companies facing restructuring

●    Offers steep discount-to-par opportunities and potential for high upside

●    Requires detailed due diligenceand expert credit selection

Special Situations

Special situations focus on event-driven lending opportunities, such as mergers and acquisitions (M&A),recapitalizations, or corporate turnarounds. These investments are often shorter in duration and provide high yield, making them attractive during market volatility or dislocations.

●    Event-driven lending tied toM&A, recapitalizations, or turnarounds

●    Typically shorter-duration,higher-yield investments

●    Offers unique opportunities for opportunistic investors

These private credit strategies,available via HUDSONPOINT, are vetted for quality, aligned with market trends,and managed with a focus on capital preservation and growth.

How Interest Rates Impact the Private Credit Industry

Rising interest rates play a dual rolein the private credit landscape:

Upside for Investors

Most private credit loans are tied to benchmarks like SOFR or LIBOR, meaning returns rise in tandem with interest rates.

Private credit has historically outperformed in periods of rising interest rates because most private credit loans are tied to benchmarks like SOFR or LIBOR. In other words, returns rise in tandem with interest rates. Per Brookings, private credit investors typically see interest spreads 250–400 bps higher than comparable public debt.

Challenges for Borrowers

Higher borrowing costs may lead tomore defaults, particularly among lower-rated borrowers. As interest payments rise, companies with thin margins or high leverage may experience stress faster, especially if operating in cyclical sectors or with limited pricing power.

Many of these companies built capitalstructures assuming a persistently low-rate environment. As base rates climb,their debt servicing burdens grow, which can lead to covenant violations orforced cost-cutting. For borrowers with floating-rate loans and little cushion,margin erosion can happen quickly.

Risk Management

One of the most pressing concerns for private credit investors in a rising-rate environment is refinancing risk: the possibility that a borrower cannot roll over debt on favourable terms. If a company can’t refinance at maturity, it could lead to distressed asset sales,covenant breaches, or loan restructurings—all of which may impact investor returns.

For example, refinancing riskincreases when lenders retreat from certain sectors or when borrower credit profiles weaken. To hedge against refinancing risk, private credit investors may look for:

●    Senior secured structures give priorityclaims on assets in case of default.

●    Floating-rate terms ensure returns remain competitive as base rates rise.

●    Covenant-heavy deal structures provide early warning mechanisms and negotiation leverage.

A diversified private credit portfoliothat includes multiple sectors, deal structures, and loan maturities can further reduce concentrated exposure to refinancing events or industry-specific downturns.

As highlighted in our recent article on How the Private Credit Industry Is Affected by Interest Rates, rising rates have created both challenges and opportunities,especially for investors positioned with the right tools and partners.

Who Can Invest in PrivateCredit?

While private credit has historically been the domain of institutional investors and ultra-high-net-worth individuals, the lending landscape is evolving. Today, private debt is more accessible to accredited investors who meet certain income or net worth thresholds.

Typically, an accredited investor is defined by the SEC as someone with:

●    A net worth exceeding $1million, excluding their primary residence, or

●    An individual annual income of$200,000 (or $300,000 jointly with a spouse) over the past two years.

Although private credit is easier toaccess than ever, it remains a complex and illiquid asset class. Investors mustbe prepared to commit capital for several years, assess nuanced credit structures, and evaluate risk-return profiles across various strategies.

In summary, private credit is best suited for more sophisticated investors with a longer time horizon, sufficient liquidity elsewhere, and a strong understanding of debt market dynamics.

Is Private Credit Right forYour Portfolio?

Private credit has quickly become a foundational component of wealth management and risk-managed strategies for investors across the wealth spectrum. It offers a unique combination of steady income, low correlation to public markets, and the potential for risk-adjusted returns that often exceed those of traditional fixed income.

For accredited investors with longer time frames, larger appetites for potential yield, and a deep desire for diversification, private credit can be a valuable addition to any modern portfolio.

At HUDSONPOINT capital, we help investors take advantage of private credit opportunities with access toinstitutional-grade deals. Each investment is carefully curated and alignedwith your long-term objectives.

Ready to explore alternative lending as a strategy for income and growth? Let’s explore how private credit investing can support your financial goals.

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