The Yield King: Private Credit & Direct Lending
The Yield King: Private Credit & Direct Lending
Why banks stopped lending and how you can earn double-digit yields by stepping into their shoes. The new “Fixed Income” for the ultra-wealthy.
Executive Summary
- The Bank Retreat: Post-2008 and 2023 banking crises, regulations (Basel III) forced banks to stop lending to mid-sized companies. Private Credit funds stepped in to fill this void, charging premium rates for bespoke loans.
- Floating Rate Magic: Unlike traditional bonds that crash when interest rates rise, Private Credit loans use Floating Rates (SOFR + Spread). If rates go up, your yield goes up. It is a natural hedge against inflation.
- Senior Secured Safety: Despite the high yield (10-12%), these loans are typically “First Lien Senior Secured.” If the borrower goes bankrupt, you get paid first, before any other creditors or equity holders.
The Illiquidity Premium
You cannot click “Sell” like you can with a Treasury Bond. Capital is locked up for 5-7 years. In exchange for this lack of liquidity, you earn an “Illiquidity Premium” of 3-5% over public markets. Only invest money you don’t need tomorrow.
Mechanic: The Lender’s Advantage
10-12% Yield
Target Return
Floating Rate
Inflation Hedge
Senior Lien
1st Repayment Priority
5 Year Lock
Illiquidity
Simulation: Portfolio Income ($10M Allocation)
Annual Cash Flow Generation
| Feature | Public Bonds (ETF) | Private Credit (Fund) |
|---|---|---|
| Interest Rate Risk | Price Falls when Rates Rise | Yield Rises when Rates Rise |
| Volatility | Daily Price Fluctuations | Stable (Quarterly Marks) |
| Access | Anyone (Retail) | Accredited / QP Only |
“In a world of 5% risk-free rates, 10% private yield is the new equity. It provides stock-market-like returns with bond-market-like protections.”
Essential Resources
INTERNAL
BMT Playbooks