Private credit is a fixed-income investment where accredited and institutional investors can purchase off-market debt from private companies. These investments are managed by non-bank financial institutions and offer potentially higher returns due to the greater risk associated with lending to small and medium-sized businesses. Since the 2008 financial crisis, banks have retreated from certain lending practices, paving the way for private credit to grow significantly. Investors interested in private credit should be aware of the pros, such as the potential for higher returns and portfolio diversification, and the cons, including lack of liquidity, high fees, and greater investment risk. Private credit is accessible through private equity funds, business development companies (BDCs), and online investing platforms, but requires due diligence and an understanding of the specific risks involved.
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