The loans inside private credit portfolios are illiquid by nature — privately negotiated, unrated, held to maturity. Every way of investing in them is therefore an answer to the same question: what does the wrapper do with the illiquidity? Lock it up honestly, meter it out through caps, or convert it into share-price volatility. That’s the real choice investors are making, underneath the product names.
The access menu
Private funds. The institutional route: closed-end drawdown partnerships that call committed capital over years and return it as loans repay. Access is limited to accredited investors at minimum — often qualified purchasers — through private placements, typically at high minimums. The illiquidity is undisguised: capital is locked for the fund’s life. Tax reporting arrives on a Schedule K-1.
Listed BDCs. Business development companies whose shares trade on an exchange. Anyone with a brokerage account can buy; liquidity is daily. The cost of that convenience is price behavior: shares trade at premiums or discounts to NAV and can fall sharply in stressed markets even when the loans beneath are performing. The illiquidity converts into volatility — you can always sell; you can’t always sell near NAV.
Non-traded and perpetual BDCs. BDCs sold through adviser channels at NAV-based prices rather than on an exchange, increasingly in perpetual-life form: continuous offering, monthly or quarterly NAV pricing, and liquidity through capped share repurchase programs. Smoother statements than a listed BDC — with the crucial caveat that liquidity is metered and can be prorated or suspended.
Interval funds and tender offer funds. Registered ’40 Act funds built for semi-liquid strategies. An interval fund commits in advance, under Rule 23c-3, to periodic repurchase offers at NAV of between 5% and 25% of shares — quarterly for most. A tender offer fund makes repurchases at the board’s discretion rather than on a committed schedule. Both often carry broad eligibility and 1099 tax reporting. The evergreen format — continuously raising, continuously investing — is the common chassis.
The comparison that matters
| | Private fund | Listed BDC | Non-traded/perpetual BDC | Interval fund | |—|—|—|—|—| | Who can buy | Accredited/QP | Anyone | Adviser channels; eligibility varies | Broad, often low minimums | | Liquidity | None until wind-down | Daily, at market price | Capped repurchases at NAV | Committed periodic repurchases (5–25%) at NAV | | Where illiquidity surfaces | Lockup | Price volatility vs. NAV | Proration/suspension risk | Proration risk | | Pricing | Quarterly NAV | Continuous market | Monthly/quarterly NAV | Daily or periodic NAV | | Tax reporting | K-1 | 1099 | 1099 | 1099 |
Three wrapper-level realities deserve emphasis:
Caps are features, and they bind. Repurchase programs and interval offers are designed to be exceeded in stress — that’s what gates and proration are for. An investor who needs the money on a schedule is in the wrong wrapper, whatever the marketing tone.
Distribution rates are not yields. Semi-liquid vehicles advertise distribution rates that can include return of capital. The distribution’s sources — disclosed in fund documents — are the honest number.
Fees stack differently by wrapper. Management and incentive fees, shareholder servicing fees on certain share classes, and leverage costs vary by structure and class. Comparing two products’ net economics requires reading both fee tables, not both headline rates; no figure quoted here would survive contact with a specific prospectus, so read the prospectus.
Matching wrapper to investor
The strategy questions come first — senior direct lending versus junior strategies are different risk propositions. But once the strategy is chosen, the wrapper logic is reasonably clean:
- Long horizon, no liquidity need, eligibility and access → private funds offer the purest expression, without a liquidity feature to pay for.
- Want daily liquidity and accept market pricing → listed BDCs, understanding the discount/premium behavior.
- Want NAV-based pricing, can tolerate metered exits → interval funds and perpetual BDCs, sized so that proration is an inconvenience rather than a crisis.
- Tax-exempt accounts (IRAs) → wrapper choice interacts with UBTI; registered vehicles generally avoid what leveraged partnerships can generate. Confirm with a tax professional.
For evaluating specific managers and products, the diligence weight belongs on the manager’s underwriting record and the wrapper’s stress behavior — and for finding who operates in the space, the SQX Alts directory maintains the industry list.
This guide is educational and general; it is not investment or tax advice.
Frequently Asked Questions
Can non-accredited investors buy private credit?
Yes, through registered vehicles: listed BDCs trade on exchanges like any stock, and many interval funds are available broadly, sometimes with modest minimums. Private funds and most non-traded placements remain limited to accredited investors or higher eligibility tiers.
What’s the difference between a BDC and an interval fund?
Both are regulated vehicles that can hold private loans. A BDC is a specialized credit vehicle that may be listed or unlisted; an interval fund is a registered closed-end fund that commits to periodic repurchase offers at NAV. Their liquidity mechanics, leverage rules, and tax reporting differ—the wrapper details drive the investor experience.
Why did my private credit fund limit my redemption?
Semi-liquid vehicles cap how much they repurchase each period. When requests exceed the cap, they’re filled pro rata and the rest resubmit—a disclosed design feature called proration or gating. The underlying loans are illiquid; the cap is how the wrapper reconciles that with periodic liquidity.
How is private credit income taxed?
It’s predominantly ordinary interest income. The reporting differs by wrapper—1099s from registered funds, Schedule K-1s from partnerships—and tax-exempt accounts holding leveraged partnership vehicles can face UBTI. Wrapper choice has real tax consequences; consult a tax professional for your situation.
Sources
- Investment Company Act of 1940, Rule 23c-3 (interval fund repurchase framework)
- Investment Company Act of 1940, Sections 54–65 (BDC framework, referenced generally)
