Private credit has moved from a niche strategy into a mainstream investing conversation. The appeal is understandable: it aims to provide higher income, customized lending structures, and access to companies that do not borrow in public bond markets. Regulators and policymakers also acknowledge that private credit can serve a real economic purpose by providing financing to borrowers that may be too small for public markets or outside traditional bank channels.
But its rapid growth has also brought growing scrutiny. The Federal Reserve described the market as growing to nearly $1.7 trillion as of mid-2023, and industry sources now estimate it is well over $2 trillion. Meanwhile, the IMF has warned that moving credit from regulated banks and relatively transparent public markets into more opaque private structures can create vulnerabilities that are harder to detect in advance.
At Grey Ledge Advisors, our bias is toward transparent, liquid public-market investments. We value access to capital and view long lockups, limited information, and unnecessary complexity as significant drawbacks of private investments. That perspective shapes our view here.
This is not to say the asset class lacks merit. Private credit often targets an “illiquidity premium” — yielding roughly 200 to 400 basis points over comparable public debt. However, our argument is that many investors underestimate the cost of that premium: the trade-offs they accept when they move into an asset class that is harder to price, exit, and evaluate under stress.
Download Our One-Sheet Summary on Private Credit
What Private Credit Actually Is
In plain English, private credit generally refers to loans made outside the public markets, often by private funds or other non-bank lenders directly to businesses. Borrowers may value the speed, flexibility, and negotiated terms these lenders can offer. But those same customized features often mean less standardization, less ongoing disclosure, and less day-to-day price discovery than investors would typically get with publicly traded bonds or broadly syndicated loans.
To help frame the differences, consider this baseline comparison:
| Feature | Public Credit | Private Credit |
| Liquidity | Generally high; trades on secondary markets daily. | Very low; capital is often locked up for years. |
| Pricing | Marked-to-market daily based on transparent, active trading. | Marked-to-model periodically (e.g., quarterly) by fund managers. |
| Disclosure | SEC-regulated reporting, audited financials, credit ratings. | Limited disclosure, often unrated, highly negotiated terms. |
| Primary Draw | Flexibility, transparency, and ease of execution. | Potential illiquidity premium (targeted higher yield). |
Illiquidity is Not a Small Detail
The first risk is the simplest one: private credit is often hard to sell.
The Federal Reserve notes that many private credit instruments lack a liquid secondary market, so lenders often hold them until maturity or refinance them. Investors should expect to hold these loans to maturity or face steep losses if they need an emergency exit. That matters because liquidity is not just about convenience. Liquidity is flexibility. It is the ability to reposition when your life changes, when markets dislocate, or when better opportunities appear elsewhere.
That same issue can persist even when private credit is packaged for a broader audience. Interval funds, which may hold less liquid assets, including certain debt instruments, generally offer repurchase windows only periodically, often quarterly, and only for a limited percentage of outstanding shares. Investors may have to wait months for the next window, and even then, may only be able to redeem part of what they requested. A liquidity wrapper is not the same thing as true liquidity.
Opacity Changes the Due-Diligence Burden
The second risk is opacity.
When an investment does not trade in a transparent public market, the burden on the investor rises. SEC investor guidance on private placements notes that these offerings are highly illiquid and often come with limited disclosure compared with registered offerings. FINRA goes further, warning that private placements may involve limited access to comprehensive information needed to value the security, no transparent market price, limited operating history, and, in some cases, no independently audited financial statements. Those are central facts about the investment.
The IMF describes the broader private credit market in similarly direct terms: private credit loans are often unrated, rarely traded, and typically “marked to model” rather than continuously priced in an open market. That means reported stability can sometimes reflect valuation methodology as much as economic resilience. The absence of visible price volatility should not be confused with the absence of risk.
Structural Stress Often Shows Up Late
The third risk is structural stress.
Private credit may appear steady in benign environments precisely because it is not continuously priced like public securities. The real question is how it behaves when liquidity tightens, refinancing becomes harder, or investor redemptions accelerate. The IMF has warned that semi-liquid structures offering periodic redemption windows while investing in illiquid assets can face a meaningful liquidity mismatch. Gates, fixed redemption periods, and suspension clauses may appear adequate in theory, but many of these structures have not been tested in a severe runoff scenario.
There is also a funding angle that deserves attention. A 2025 Federal Reserve analysis found that committed bank credit lines to private credit vehicles had reached roughly $95 billion. The Fed notes that, in times of market disruption, private credit vehicles may be forced to draw on those lines, and correlated liquidity demands could become significant. That does not mean a crisis is inevitable, but it does mean that structural stress can emerge through channels investors may not be thinking about when they see a smooth return series.
“Accredited” is Not the Same as “Appropriate”
One final point is often overlooked: eligibility is not the same thing as suitability.
The SEC explains that private placements are often limited to “accredited investors” in part because those investors are presumed to be financially sophisticated and able to bear losses with less protection than in a registered offering. But that is a legal threshold, not a fiduciary endorsement. Being allowed to buy something does not mean it belongs in your portfolio, fits your liquidity needs, or compensates you adequately for the risks involved.
Our Perspective: Simplicity Still Has Value
Private credit is not inherently without merit. For some institutions with specialized underwriting teams, very long time horizons, and the ability to absorb lockups and valuation uncertainty, it may play a role. But for many individual investors and families, the trade-off is less compelling than the marketing suggests.
At Grey Ledge Advisors, well-constructed portfolios of public securities can provide transparency, liquidity, and flexibility without requiring investors to accept opaque structures or long lockups. When risks, costs, tax implications, and exit options are easier to understand, investors are better positioned to make disciplined decisions and stay aligned with their long-term goals.
Compliance Disclosure: This content is for informational purposes only and should not be considered tax, legal, or investment advice. Strategies such as cash balance plans involve specific regulatory requirements. Always consult with a qualified CPA or financial advisor regarding your specific business situation.