Private Credit Fundraising: Raising a Direct Lending or Credit Fund

Private credit fundraising differs from equity in one decisive way: investors underwrite downside and cash yield rather than upside. Diligence concentrates on underwriting discipline, workout capability and loss history rather than on outsized winners — and insurance capital, driven by regulatory capital treatment, has become a defining feature of the buyer base.

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Who allocates to private credit

Investor	What they want	Notes
Insurers	Predictable cash yield, capital-efficient treatment	Often the largest and most structurally demanding buyer
Pensions	Yield with lower volatility than equity strategies	Consultant-gated, formal minimums
Family offices	Current income, shorter duration than PE	Faster, more flexible on structure
Fund of funds	Manager selection in a crowded field	Will consider newer managers
Wealth platforms	Income products for end clients	Needs evergreen or semi-liquid structures

Insurance capital changes the structure

Under regimes such as Solvency II in Europe and the NAIC framework in the US, different assets attract different capital charges. An insurer's appetite is therefore shaped as much by balance-sheet treatment as by expected return — which is why rated note feeders, tranched vehicles and other capital-efficient wrappers have become common in credit fundraising and are rare in equity strategies.

If insurance capital is a target, the structural question has to be answered early. Retro-fitting a capital-efficient wrapper onto a fund already in market is expensive and slow, and insurers will simply decline rather than wait.

What credit LPs diligence

Loss history, not just returns. Realised losses, recovery rates, and how they compare through a full cycle. A credit manager with no losses has either not lent long enough or is not being straight.
Underwriting discipline. Credit approval process, who can override, and evidence of deals declined. Growth in deployment without growth in underwriting capacity is the classic warning sign.
Workout capability. What actually happens when a borrower breaches. Dedicated workout resource, and documented outcomes from previous restructurings.
Documentation quality. Covenant packages, security, intercreditor position. Covenant-lite exposure is examined closely.
Portfolio construction. Concentration by borrower, sector and sponsor; floating versus fixed; hedging.
Leverage. Fund-level leverage, its source, and what happens to it under stress. This is where credit funds most often surprise their investors.
Valuation. How unrealised loans are marked and how independent that process genuinely is.

How credit raising differs from equity

Lead with downside, not upside

The pitch that works in credit describes what happens when things go wrong, in detail. An equity-style pitch emphasising winners reads as a category error.

Cash yield is the headline

Distribution rate and its stability matter more than IRR to most credit buyers, particularly insurers and income-focused wealth channels.

Structure is part of the product

Rated notes, levered and unlevered sleeves, evergreen wrappers. Different buyers need different vehicles for the same underlying strategy.

Sponsor relationships are the moat

In sponsor-backed lending, deal flow depends on being on sponsors' lender lists. Evidence that, specifically.

Expect cycle questions

Every credit conversation eventually reaches 'what happens in a default cycle'. Have the data, not a narrative.

Frequently asked questions

Who invests in private credit funds?

Insurers, pension funds, family offices, fund of funds and wealth platforms. Insurance capital is particularly significant because private credit's predictable cash flows can be capital-efficient under Solvency II and NAIC frameworks, which shapes both appetite and required structure.

What do credit LPs diligence most closely?

Loss history and recovery rates through a cycle, underwriting discipline and evidence of deals declined, workout capability, documentation and covenant quality, concentration, fund-level leverage and its behaviour under stress, and the independence of loan valuations.

What is a rated note feeder?

A structure that issues rated debt securities to investors, who then gain exposure to an underlying fund. Insurers use them because a rated instrument can attract materially more favourable regulatory capital treatment than a direct fund interest.

How is credit fundraising different from equity fundraising?

Investors underwrite downside and cash yield rather than upside, so diligence concentrates on losses, recoveries, underwriting discipline and workout capability. Distribution rate and stability usually matter more than IRR, and structure is a bigger part of the product.

Do private credit funds use leverage?

Many do, at fund level, through subscription lines, asset-backed facilities or CLO structures. LPs examine the source, the terms, and what happens under stress — leverage behaviour in a downturn is where credit funds most often surprise their investors.

Can an emerging manager raise a private credit fund?

It is harder than in equity strategies because loss history through a cycle is central to the pitch and a new manager has none. Realistic routes are a seed or anchor relationship, a separately managed account with one institution before a commingled fund, or a strategy where the team's prior loss data is genuinely attributable.

SeRuM provides introduction and networking services. We are not a registered broker-dealer, not a placement agent, and not an investment adviser. We do not offer, solicit or sell securities, we do not provide investment, legal, tax or accounting advice, and we do not make recommendations regarding any investment. Nothing on this website constitutes an offer to sell or a solicitation of an offer to buy any security, and no such offer will be made except through definitive offering documents provided by the issuer. All investment decisions, due diligence and negotiations are the sole responsibility of the parties involved. Investing in private funds and private companies involves substantial risk, including illiquidity and total loss of capital. Past performance is not indicative of future results.