Weigh risk and return across private credit strategies, and set them against other private market assets, in a strategic allocation

Private credit runs from senior direct lending, with floating-rate contractual income and the lowest risk, through unitranche, mezzanine and venture debt to distressed debt, which behaves like equity. Returns combine the base rate, a credit spread, an illiquidity and complexity premium and origination fees. Risks include default, recovery, concentration, illiquidity and documentation. Against private equity, real estate and infrastructure, private debt offers lower but steadier returns, earlier cash yield, a shallower J-curve and the protection of seniority. In a strategic allocation it provides income and floating-rate protection against rising yields, and it sits between public credit and private equity. The trap: the promised yield is not the expected return. Deduct expected losses (probability of default × loss given default).