Why Private Credit for High-Net-Worth Individuals Can Become a Bedrock for Fixed-Income Investors

Private credit has been one of the fastest growing segments of the financial system for the past decade, reaching more than $2 trillion globally in 2024.¹ Private credit funds, which offer loans to privately held companies, are fixed-income vehicles that can offer higher returns than bonds or other fixed-income investments.

With expensive buy-ins — some funds require a minimum investment of $10 million to access the top share class — access to private credit has traditionally been limited to ultra-high-net-worth families and institutional investors.

But private credit funds have become more accessible to a broader market of investors. These funds offer significant potential advantages compared to other forms of fixed-income investments.

Understanding private credit for high-net-worth individuals

Private credit is a type of financing in which non-bank lenders issue loans to companies seeking alternative access to capital. Professional management firms lend money drawn from a private credit fund created expressly for the purpose.

Most private equity lending comes in the form of direct loans that are senior in the capital structure, so they tend to be highly collateralized. These loans are typically offered at a floating rate.

Individual investors access the private credit market through funds run by professional management firms. Well-managed private credit funds can produce high yields with lower volatility than other fixed-income assets. Most funds pay monthly distributions to their shareholders.

The returns in private credit can be enticing: One of the largest private credit funds offered an annualized distribution rate of 10.4% in December 2024,² compared with a return of 8.2% for high-yield bond funds for 2024.³ Because the underlying loans usually have floating rates, they are protected from inflation eating into returns.

Investing in private credit comes with some caveats

Private credit funds have higher minimum investment levels than many other fixed-income investments, often ranging from $50,000 to $100,000 for Class A or institutional shares. Those categories of shares have a more advantageous fee schedule than other classes of private credit funds but can only be obtained through a registered broker/dealer or registered investment advisor with a relationship with the fund management company.

For investors needing greater liquidity, private credit investments has drawbacks. There may be a penalty for selling private credit fund shares within 12 months and further restrictions on redemptions in certain circumstances. Distributions are taxed as ordinary income, unless held in a tax-advantaged account.

As a high-net-worth investor, deciding on the viability of private credit should take into account your needs and risk tolerance. For example, private credit can be a viable option for retirees looking for a steady stream of income with relatively low risk. However, private credit may not be a good choice for those unwilling to invest high amounts for extended periods of time.

It’s also important to research the fund manager, the fee structure and penalties for early withdrawal. Assessing the quality of the loans in the portfolio — the quality of the collateral backing the loans and the creditworthiness of debtors — is also essential. Working with a qualified financial advisor can help you assess whether private credit fits into your portfolio.

HUB Retirement and Private Wealth offers institutional and retirement services to for-profit and not-for-profit organizations and customized private wealth management services to individuals and families. HUB Retirement and Private Wealth employees are registered representatives of and offer securities and advisory services through various broker dealers and registered investment advisors, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate

¹ McKinsey, “The next era of private credit,” September 24, 2024.
² Blackstone, “Institutional caliber private credit for income-focused investors,” accessed January 9, 2025.
³ Morningstar, “Bond Funds Hurt By Rising Yields in Q4 2024,” January 2, 2025.