Inside a private credit fund

Where private credit investing starts from

The 2008 global financial crisis forced banks to repair damaged balance sheets and the reforms that followed changed the economics of lending. Basel III, introduced in 2010, called for stronger bank capital and liquidity and in 2013, US regulators adopted capital rules implementing Basel III.

Businesses that didn’t fit the mold of new banking standards still needed money and private-credit managers raised capital from investors and negotiated loans directly with them. The IMF identifies post-crisis bank regulation as one contributor to this expansion, alongside investor demand and the appeal of tailored financing. Private credit existed before the crisis, but the opportunity grew substantially afterward.

For large asset managers, this offered a business line they could scale: build lending teams, raise more capital, originate loans and earn recurring fees. Blackstone’s 2021 launch of BCRED extended that model to eligible individual investors - this is a product that can now fit in an individual investor’s portfolio.

Important definitions

A business development company, or BDC, pools investors’ money to finance businesses through loans or equity. Non-traded means its shares do not trade on a stock exchange, meaning you cannot simply press “sell” as you would with an ETF.

Perpetually offered means the fund keeps offering new shares over time and evergreen means it is designed to continue operating and reinvesting without a fixed liquidation (formal exit of the investment) date. Neither term promises immediate withdrawals.

As an example, we will look at the Blackstone Private Credit Fund

Blackstone Private Credit Fund, or BCRED, primarily focuses on US senior secured (senior means seniority in the capitalization table, and security means backing by a tangible asset) private loans.

BCRED accepts subscriptions monthly. It combines shareholder capital with borrowing to finance investments. Borrowers pay interest, and investors receive distributions (not interest). Distributions are interest, less financing costs, fees and expenses.

Two questions behind every loan

BCRED targets large, performing companies, meaning businesses meeting their borrowing obligations - like you would meet paying rent or your mortgage. The holdings include software and professional-services companies. Prior to lending, BCRED would examine the durability of revenues, costs and cash generation rather than relying on company size alone.

The first question is: can the business pay us? The lender models cash remaining after operating costs, taxes and necessary re-investment. It tests whether that cash covers interest and scheduled repayments, then examines how principal will be repaid at maturity. For lending, this is called scenario modelling and before giving the loan, the investment team would test the repayability under scenarios that include lower sales or weaker margins. They would also test how they get their money back.

The second question is: what could we recover if things deteriorate? Enterprise value estimates the operating business’s worth. Comparing relevant debt with that value gives a loan-to-value ratio, or LTV. Both earnings and the valuation multiple a buyer might pay can fall during distress.

Cash-flow analysis and enterprise-value analysis work together. A valuable business can still struggle to meet payments (think about a hyper-growth company dumping all of its cash flows for future growth). A company paying interest today can still become overindebted if its value falls. Collateral, repayment priority and restructuring costs also affect recovery.

From loan income to your return

The interest rate charged to borrowers is only the start. BCRED’s published terms specify a 1.25% annual management fee on net asset value, or NAV: assets minus liabilities. Its income incentive fee is 12.5%, subject to a hurdle and catch-up mechanism (more on this in a future article).

Three numbers deserve separate attention:

For example, invest $100, receive $9 in cash and finish with shares worth $96. Your return is 5%, before personal taxes, assuming no reinvestment or additional charges. The $9 payment alone does not describe the outcome.

Income quality matters too - for example, payment-in-kind interest is added to a borrower’s debt instead of paid in cash, which supports reported income without providing cash for distributions. Furthermore, the interest can either be fixed-rate or floating-rate (none are inherently better; investors use these mechanisms in certain situations. For example, if an investor thinks interest rates will go down, you may want a fixed-rate product. If you think interest rates will rise, you may want a floating-rate product.

When comparing funds, use the same period and share class but do not subtract management fees again from returns already reported after those fees.

Getting your capital back

BCRED normally targets quarterly repurchases of up to 5% of outstanding shares, measured by share count or aggregate NAV. The board can amend or suspend the programme - this is a fund-level limit, not an entitlement for each investor. BCRED’s Q2’2026 letter reported approximately $2.2 billion of shares accepted for repurchase. That figure describes accepted withdrawals, not proof that every request was fulfilled.

Loans take time to repay or sell - a fund offering periodic liquidity must manage withdrawals alongside those realities. Read the actual tender terms before assuming when your capital will be available.

What I would examine

My checklist is non-exhaustive:

Sector exposure: which industries dominate, and which borrowers share the same vulnerabilities?

Updated LTVs: what do current and stressed values imply? BCRED’s published 41% average LTV is explicitly “at underwrite,” not a current stress valuation. [8]

Valuations: who proposes, reviews and approves the marks? BCRED describes board determinations in conjunction with third-party valuation firms for relevant investments. A loan’s fair-value mark is distinct from its borrower’s enterprise value. [8]

Income and structure: do cash earnings support distributions? Examine troubled loans, fund borrowing, all-in fees and withdrawal terms.

Where this fits

Private credit can contribute a regular stream of cash distributions. Senior secured lenders rank ahead of equity in the same borrower, providing greater protection against loss. That priority helps explain the income proposition, although payments and principal remain at risk.

Next time, we’ll move from a descriptive overview of BCRED and private credit into a deep analysis of the fund offering. Then I'll discuss how this investment fits in a portfolio, specifically, how alternatives fit alongside stocks, bonds, property and business interests, and how allocation size, liquidity needs and existing exposures should reflect the goals your money serves.

Sources

[1] BIS: Basel III framework (2010, revised 2011).

[2] Federal Reserve: US Basel III capital rule, July 2013.

[3] Federal Reserve: 2013 leveraged-lending guidance.

[4] IMF: The Rise and Risks of Private Credit, April 2024.

[5] Blackstone: BCRED launch history, February 2022.

[6] BCRED: Offering terms, accessed October 17, 2026.

[7] SEC: Non-Publicly Traded BDCs, investor bulletin.

[8] BCRED: Portfolio and valuation footnotes, accessed October 17, 2026.

[9] BCRED: Second-quarter 2026 shareholder letter, July 30, 2026.