Private credit and public credit serve similar purposes—providing debt capital to borrowers—but differ significantly in structure, access, and risk-return profiles.
Market Structure
Public Credit (Bonds):
– Traded on exchanges or over-the-counter markets
– Standardized securities with public ratings
– High liquidity with daily pricing
– Accessible to retail investors
Private Credit:
– Negotiated directly between lenders and borrowers
– Customized loan terms and structures
– Illiquid with infrequent trading
– Primarily institutional investors
Documentation and Terms
Public Bonds:
– Standardized indentures
– Light or no financial covenants (especially high-yield)
– Fixed interest rates common
– Public disclosure requirements
Private Credit:
– Bespoke credit agreements
– Comprehensive financial and operational covenants
– Floating rates predominant
– Private, confidential terms
Borrower Profile
Public Markets:
– Larger companies ($500M+ revenue)
– Investment-grade and high-yield credits
– Established track records
– Public company reporting
Private Markets:
– Middle-market companies ($10M-$1B revenue)
– Typically below investment grade
– Mix of mature and growing businesses
– Private company financials
Investor Considerations
Liquidity: Public bonds can be sold daily; private loans are illiquid
Returns: Private credit typically offers 2-4% premium for illiquidity
Volatility: Private credit valuations are more stable (less mark-to-market)
Access: Public bonds available through brokerage accounts; private credit requires accredited investor status and larger minimums
Control: Private lenders have direct borrower relationships and stronger covenant protections
When to Choose Each
Public Credit suits investors who:
– Need daily liquidity
– Want transparent pricing
– Have shorter investment horizons
– Prefer passive, hands-off investing
Private Credit suits investors who:
– Can commit capital for 5+ years
– Seek higher risk-adjusted returns
– Value downside protection through covenants
– Have access to quality managers
Both play important roles in diversified fixed income portfolios, with private credit increasingly viewed as a core allocation rather than just an alternative.