What’s Private Credit and Why Is Everyone Talking About It?

Private credit has become one of the fastest-growing segments of the investment world, and it’s attracting attention from both institutional and individual investors. If you’ve been hearing more about private credit in 2026, there’s a good reason: many companies that once would have gone public are now choosing to remain private, relying instead on private investors and private lenders to raise capital.

As access to these companies through public stock markets has declined, investors have increasingly turned to private credit funds in search of higher returns and greater diversification. While these investments have historically outperformed many traditional fixed-income options, today’s higher interest rates and slower economic growth have made it more important than ever to understand both the opportunities and the risks.

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What Is Private Credit?

Private credit refers to loans made by non-bank lenders to privately owned companies. Rather than purchasing publicly traded stocks or bonds, investors provide capital to private businesses through professionally managed investment funds.

The private credit market expanded rapidly after the 2008 financial crisis. Regulations introduced under the Dodd-Frank Act limited many types of leveraged lending by traditional banks, creating an opportunity for private investment firms to step in and provide financing.

Benefits of Private Credit Investing

• Potential for Higher Returns: Because investors typically commit their money for several years, private credit funds often earn an illiquidity premium. While diversified stock market investments have historically averaged around 9% annually over long periods, some private credit funds have targeted returns in the 10% to 12% range.’
• Floating Interest Rates Can Help During Inflation:Many private credit loans carry floating interest rates tied to benchmark rates established by the Federal Reserve. As interest rates rise, the income generated by these loans may also increase, making private credit more resilient during inflationary environments than many traditional fixed-rate bonds.
• Diversification Beyond Public Markets: Private credit investments generally aren’t subject to the same day-to-day price swings as publicly traded stocks. Adding private credit to a portfolio may help reduce overall volatility and provide another source of income that isn’t perfectly correlated with public markets.
• Senior Secured Lending Offers Additional Protection:Many private credit funds act as senior secured lenders, meaning they are among the first creditors entitled to recover assets if a borrower defaults. While this doesn’t eliminate risk, it may improve recovery prospects compared to other types of debt or equity investments.

Risks of Private Credit

Despite its growing popularity, private credit isn’t appropriate for every investor. Here are some of the pitfalls investors have to contend with:

• Limited Liquidity:One of the biggest drawbacks is illiquidity. Many private credit funds require investors to keep their money invested for three to seven years, making it difficult—or impossible—to access capital before the investment matures.
• Less Transparency:Unlike publicly traded companies, private borrowers generally aren’t subject to the same reporting requirements. Investors often rely heavily on fund managers to evaluate borrowers, making manager selection especially important.
• Increased Credit Risk During Economic Slowdowns:Many private credit funds lend to middle-market businesses that have fewer financing options than large public companies. During recessions or periods of elevated interest rates, these businesses may face greater financial pressure, increasing the likelihood of loan defaults.
• High Fees Can Reduce Returns:Private credit funds often charge management fees and performance-based compensation. Depending on the fund, these costs can significantly reduce net returns, sometimes resulting in performance that trails lower-cost public market investments.
• Manager Selection Matters:Unlike passive index investing, private credit performance depends heavily on the experience and underwriting discipline of the fund manager. Two funds investing in similar markets can produce dramatically different results, making due diligence essential before investing.

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At Maggi Tax and Wealth Advisors in Tampa, Florida, our investment advisors help clients evaluate alternative investments like private credit in the context of their full financial picture. We focus on aligning investments with your long-term goals, tax situation, and retirement needs so you can make informed decisions with clarity and confidence. Call (727) 263-4884 today to schedule a consultation!