Typically, end-investors invest through private credit funds managed by specialist fund managers, though business development companies (BDCs) in the US are another type of investment vehicle growing in popularity. BDCs are closed-ended investment vehicles that are generally publicly listed and can be bought and traded daily on an exchange, allowing investors to participate in the private credit market. BDCs raise funds from investors and use the capital to on-lend to borrowers, typically small and mid-sized companies.
Private credit, also commonly known as private debt, is an alternative form of debt financing that borrowers may access outside of traditional sources. As the name suggests, these loans are provided through private channels, typically by end-investors through vehicles set up for lending.
This distinguishes them from the traditional intermediation process where banks collect deposits and lend to borrowers, as well as other common funding channels such as bank-led syndicates and public bond markets.
