Alternatives
Private credit: read the terms before the target return
Understand the borrower, the manager and your commitment before discussing the yield.
What is the borrower paying for?
Private credit can fund situations that need a particular structure, timing or level of flexibility. It is not accurate to assume every borrower is there because a bank rejected it.
The useful questions are why this financing is needed, how the business will repay it and what protections the lender has if the plan does not work. A larger interest rate is not an answer to those questions.
You are evaluating a manager as well
In a fund structure, the manager selects and monitors investments. Understand the team’s process, concentration limits, reporting and experience handling stressed situations.
Ask how security is assessed, who monitors the borrower’s obligations and what action can be taken when a covenant is breached. Collateral and covenants can matter, but neither makes a loan risk-free or recovery immediate.
A commitment is not always one payment
Some funds draw committed capital in stages. The timing and notice period are governed by the fund documents, not a universal timetable that applies to every AIF.
Before committing, understand how much remains callable, how quickly you must fund a drawdown and what happens if you cannot meet it. Money reserved for a future call needs a plan of its own.
Read what happens to your return
A target return may be quoted before or after different expenses. Check management fees, other charges, performance participation and the distribution waterfall. Ask for a worked example of what investors receive under different outcomes.
Also check the tenure, extension provisions and exit restrictions. A lock-in can give a manager time to work with an investment; it does not itself create compounding or a better outcome for the investor.
Access is useful only if it fits
An unfamiliar product is not automatically an upgrade to your portfolio. Eligibility, commitment size, liquidity needs and capacity for loss all belong in the decision.
Read the placement and contribution documents, ask questions you can understand the answers to, and take time over the terms. The real decision is whether you can live with the commitment through difficult outcomes as well as the expected one.