Private credit is lending that happens outside banks and public bond markets: funds and other institutional investors negotiate loans directly with borrowers, typically secured by collateral, in exchange for higher yields and less liquidity than public debt. Eligible investors access the asset class through reserved credit funds, credit-linked notes and direct deal participations.
When a mid-sized company needs financing, or a developer needs a bridge loan the bank committee would take four months to approve, the money increasingly comes from a fund. That shift — from bank balance sheets to investment vehicles — created an asset class that has grown to roughly USD 1.7 trillion globally. The mechanics matter, because the returns and the risks both come from the same place: doing what banks used to do, without a deposit base behind you.
What private credit is — and what it is not
Private credit (or private debt) covers loans and debt instruments that are originated and held privately rather than issued as securities on public markets. The lender negotiates directly with the borrower: rate, maturity, collateral, covenants. There is no exchange listing, no daily price, and usually no intention to trade the position. That distinguishes it from high-yield bonds (public, tradeable, standardised) and from retail peer-to-peer platforms (small tickets, no institutional underwriting). The core of the asset class is institutional: professional teams underwriting substantial loans against cash flows or assets.
Why the asset class exists
After 2008, capital rules — Basel III and its successors — made many categories of lending expensive for banks to keep on balance sheet. Banks retrenched; borrowers still needed credit. Funds stepped into the gap with two advantages banks struggle to match: speed (a private lender can commit in weeks, not quarters) and flexibility (bespoke amortisation, hybrid structures, situations a bank's credit policy simply excludes). Borrowers pay for that speed and flexibility, which is precisely where the investor's excess yield comes from.
The main strategies
- Direct lending. Senior secured loans to operating companies, usually floating-rate, held to maturity. The conservative core of the asset class.
- Real estate finance. Bridge loans, development finance and mezzanine tranches secured by property, sized against conservative loan-to-value ratios.
- Mezzanine and hybrid. Subordinated debt sitting between senior loans and equity, compensated with higher coupons and sometimes equity kickers.
- Special situations and distressed credit. Buying non-performing loans (NPLs) or unlikely-to-pay exposures (UTPs) at a discount to face value, then working them out through restructuring, collateral enforcement or negotiated settlement. Italy is one of Europe's most established markets here, with a deep stock of credit secured by real estate and a mature servicing industry.
- Asset-backed and specialty. Lending against receivables, inventories, equipment or contractual cash flows.
Where the returns come from
Private credit is paid for three things public bond investors do not supply. The illiquidity premium: capital is locked for years, and the yield compensates the lock. The complexity premium: bespoke underwriting, documentation and monitoring that passive capital cannot perform. And origination economics: arrangement fees and, since most loans float over a reference rate, coupons that rise with rates rather than losing value like fixed-rate bonds. In distressed strategies, a fourth source dominates: the discount — the difference between the price paid for a claim and what a disciplined workout ultimately recovers.
The risks, without the brochure gloss
Every source of return above has a mirror image. Credit risk: the borrower may not pay, and there is no liquid market to sell into when the news turns bad. Illiquidity: your exit is the loan's repayment or the fund's realisations, on the asset's timetable rather than yours. Valuation opacity: positions are marked by models and appraisals, not by a market, so interim valuations carry judgement. Concentration: a single large position can define an outcome. And above all manager skill: in private credit the underwriting is the product — the difference between a good and bad vintage is mostly the discipline of whoever originated the loans. Mitigants are structural, not cosmetic: seniority, collateral at conservative loan-to-value, covenants that force early intervention, diversification across borrowers, and alignment through manager co-investment.
How the wrappers compare
| Feature | Direct lending fund | Distressed credit fund | Credit-linked note | Public high-yield bond |
|---|---|---|---|---|
| What you hold | Units of a closed-ended AIF | Units of a closed-ended AIF | A listed note of an issuer | A tradeable security |
| Return driver | Loan coupons + fees | Discount to face + workout | Fixed coupon linked to reference credit | Market coupon |
| Collateral | Yes, negotiated | Yes, often real estate | Depends on structure | Usually unsecured |
| Liquidity | Low — fund term | Low — workout horizon | Limited transferability | Daily, market permitting |
| Pricing | Periodic NAV | Periodic NAV | Issuer/agent quotes | Market price |
| Typical investor | Professional | Professional | Professional / qualified | Any |
How eligible investors access private credit
Three routes dominate. Reserved credit funds — closed-ended AIFs such as those working Italian distressed exposures — pool capital behind a team and a pipeline, with the AIFM's governance around valuation and conflicts. Credit-linked notes (CLNs) package defined credit exposure into a security with an ISIN and a stated coupon, tradeable within the limits of the structure; the coupon is conditional on the reference credit performing, so the note carries both issuer and reference-entity risk. Direct deal participations — single-name real estate or corporate credit opportunities — offer the most control and the least diversification, and are reserved for investors vetted to evaluate them individually. On Framont Access, the first two live on the Funds page and the third in the Deals section, which is code-gated for vetted investors.
Private credit on Framont Access
The platform's credit exposure spans all three routes: Hubble Capital, the credit compartment of a closed-ended reserved Italian AIF focused on distressed credit largely secured by real estate collateral; CIREDCO Fund 1, a closed-ended Notified AIF co-investing in Italian real estate distressed credit opportunities (NPLs and UTPs secured by Italian property); and Zalphyx Yield Strategies, a credit-linked note paying 6% per annum for professional and qualified investors, documented in its official term sheet. Selected private credit and real estate deals are additionally available to vetted investors in the Deals section.