Private debt funds are investment vehicles that specialize in lending activity and raise money from investors before lending that money to a wide range of companies [1] [3]. They provide an alternative to traditional bank lending and offer investors access to steady returns that occur from having private debt as a separate asset class [1]. Private debt funds are designed to provide and manage portfolio loans rather than invest in private debt [1]. Private debt involves the lending activity carried out by entities other than banks, and it can include both peer-to-peer lending as well as lending by more specialized entities and companies that focus on segments of the economy [3]. Private debt funds make senior loans directly to middle-market firms, where most private debt funds are lent [2]. These loans are not available via publicly traded markets, and they generate returns for investment managers and their private debt fund investors via interest payments [6]. Private debt funds have much in common with other private capital strategies such as private equity and venture capital, but they are seen as slightly less risky than equity investments due to capital structure and the ability to highly customize the risk profile of a private debt investment [6].
Citations:
[1] https://trustabcapital.com/what-is-a-private-debt-fund/
[2] https://bfi.uchicago.edu/insight/research-summary/a-survey-of-private-debt-funds/
[3] https://www.prestigefunds.com/know/private-debt/
[4] https://www.preqin.com/academy/lesson-4-asset-class-101s/private-debt
[5] https://www.barrons.com/articles/potential-risks-in-the-growth-of-private-debt-funds-2b589481
[6] https://www.allvuesystems.com/resources/what-is-private-debt/