Is Private Credit Worth the Risk?

Apr 20 2026 | Back to Blog List

If you feel like you've been hearing a lot about private credit lately, you're not alone. Over the past decade, private credit has moved from a niche asset class largely reserved for institutions and high-net-worth investors, to a more widely marketed option. If you are an accredited investor, you might have already been pitched on a private credit fund or Business Development Company (BDC), or even hold shares in one.

Private credit can be appealing in a world where investors are often obsessed with chasing alpha. Private credit firms, freed from the regulatory and disclosure requirements faced by banks, often tout the potential for higher yields and more income than traditional bond investments, with lower reported volatility than public markets.

It’s an enticing prospect, to be sure. But does that mean it belongs in your portfolio?

In many cases, we would say no.

Private credit funds tend to be complex, less liquid investments, with risks that can surface at inopportune times—something markets saw this past March, as investors grew spooked about private loans to software companies coinciding with elevated redemption requests. In some high-profile cases, investors were unable to sell their shares or withdraw their funds because of built-in redemption caps.

It’s our position that private credit isn’t inherently good or bad, but rather useful in specific cases. Unfortunately, in many cases, it is being marketed and adopted more quickly than it’s fully understood. Read on to learn about this investment class, and when it might make sense for your financial life plan.

What Private Credit Actually Is

While it sounds exclusive and innovative, at its core, private credit is really just another form of lending.

Instead of going to a bank or issuing bonds in public markets, companies borrow directly from private investors or funds. In return, those investors receive interest payments, which may be higher than what's available from certain traditional fixed income investments, depending on the structure, borrower quality, and risks involved.

Historically, access to these opportunities has been limited to institutions and individuals who meet specific financial thresholds—typically accredited investors or qualified purchasers.

• An accredited investor generally has a net worth exceeding $1 million (excluding a primary residence) or annual income of more than $200,000 individually ($300,000 for married couples) in each of the past two years, with a reasonable expectation of continuing the same income level in the current year. The SEC also recognizes certain professional credentials and other qualifying criteria.
• A qualified purchaser generally meets an even higher bar, typically requiring at least $5 million in investments (not net worth).

These thresholds, established under U.S. securities laws, exist to help limit certain private offerings to investors who are presumed to have the financial resources, sophistication, or access to advice needed to evaluate these complex, less liquid investments.

In recent years, however, the way investors access private credit has evolved significantly. Vehicles like interval funds, non-traded business development companies (BDCs), and other semi-liquid structures have made it easier for a wider range of investors to participate. A prolonged period of low interest rates led many investors to search for higher-yielding alternatives, contributing to both the growth of private credit and its inclusion in more portfolios.

As a result, private credit is no longer a niche allocation. It's a widely marketed investment category—often positioned alongside traditional income strategies, despite potentially behaving very differently.

The Appeal and Tradeoffs of Private Credit

Private credit can offer certain potential advantages to the right investors.

Yields may indeed be higher than traditional bonds, depending on the underlying investments, and income may appear consistent. And because these investments aren't typically traded daily, they can appear less volatile—something many investors may find appealing during uncertain markets. In the right context, those characteristics can be valuable.

But they come with tradeoffs that aren't always fully appreciated.

Liquidity is one of the most important. Many private credit investments limit how and when investors can access their money, typically both in terms of withdrawal limits and timing. That may not feel significant in normal market conditions, but it can matter greatly during periods of market stress. Redemption requests can be restricted or delayed at the fund’s discretion, which is what some investors experienced in March 2026, when elevated redemption requests ran into single-digit percentage caps on what they could sell or withdraw.

(It should be noted that these redemption caps are generally a feature, not a flaw, of many private credit models, as they help protect the fund’s stability and value for remaining investors. They can be a painful lesson those who are new to private credit or who expected easier access to their money.)

Valuation is another challenge. Because these investments aren't traded on open markets, pricing is often based on internal models or periodic assessments set by the manager itself. That can smooth out reported volatility—but it can also mean problems are slower to surface. For everyday investors, that can create a disconnect: you may think you're sitting on a stable investment right up until a writedown hits, and when it does, it can be sudden and steep.

Fees deserve more attention than they typically get. Management fees, performance fees, and layered origination, servicing, and administration charges can push all-in expenses well above what investors generally see in most public market alternatives—in some cases above 3% annually. Those costs eat meaningfully into the yield advantage that draws investors in the first place, and they are rarely presented in a single, easy-to-compare number.

And then there's the issues of complexity and lack of transparency. Private credit structures vary widely, and investors often lack clear visibility into exactly what's held within the fund. The underlying loans can carry very different levels of risk depending on the borrower, loan terms, and the broader economic environment. Without in-depth due diligence, it can be hard to asses the quality of those loans and their underlying risks; for many individual investors, that type of investigation is difficult, often leaving them to take the fund’s word on its suitability.

None of this makes private credit inherently problematic, mind you. But the benefits and the risks are closely linked, and understanding both matters before making it part of a portfolio.

How We Think About It

At Cedar Point Capital Partners, we view private credit as a tool. Like any tool, its effectiveness depends on whether it fits the job at hand.

Private credit may be worth considering for investors when:

• You genuinely don't need the money for several years. If your time horizon aligns with the investment’s illiquidity—say 7-10 years—the potential liquidity premium you earn may be compensation for that constraint, not a hidden trap.
• You're diversifying away from public markets. Private credit returns have historically had low correlation to stocks and bonds, which can offer genuine portfolio construction value for certain investors.
• You need income. These are floating-rate loans in many cases, so in a higher-rate environment they've presented attractive yields—often 8-12% in recent years.
• You have enough capital to diversify across managers and vintages. Concentration in a single fund, strategy, or manager is where things tend to get dangerous.

On the other hand, the lack of transparency within many of these funds can run counter to one of our core beliefs: that investors should have a clear and ongoing understanding of their portfolio and the risks they’re taking. Private credit funds are often harder to evaluate than public investments, and can carry added risk because of that complexity. If your goal is achieving confidence in wealth, you must be able to weather that added risk without having to get out of your position.

For that reason, we approach private credit selectively. The broader industry narrative seems to be that private credit is the only way to earn meaningful yield without taking on additional risk, but perhaps this is more of a marketing position and not an empirical one. In some cases, it may serve a specific purpose within a well-constructed portfolio. In others, the tradeoffs may outweigh the potential benefits—particularly if the investment is being driven more by perceived cachet than a clearly defined role in achieving one’s long-term goals. Often, it’s about being disciplined enough to say no.

After all, our role isn't to chase trends or the marketing gloss; it’s to help ensure every investment decision you make is intentional, aligned and fully understood.

If you're evaluating where private credit fits—or whether it should at all—we’re ready to help. Reach out and let’s start the conversation about your future.

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