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Private credit
Also called direct lending. A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
Lending to companies outside the public bond and syndicated loan markets, usually at floating rates with bespoke covenants.
The exam angle
Return comes from illiquidity and complexity as much as from credit risk. Marks are infrequent, so reported volatility understates the real thing.
Where it appears in the syllabus
- Private Markets pathwayCFA Level III · exam weight 30–35% · GP/LP economics, private equity and debt, special situations, real assets.
- Credit Risk Measurement & ManagementFRM Part II · exam weight 20% · Merton and reduced-form models, credit VaR, counterparty risk, CVA, CDOs.
Related terms
- Distribution waterfallThe agreed order in which a private fund’s proceeds are shared between limited and general partners.
- General partnerThe manager of a private fund, responsible for investment decisions and bearing unlimited liability for the partnership.
- Special situationsInvesting around a specific corporate event — restructuring, distress, spin-off or litigation — where the outcome…
- Vintage yearThe year a private fund makes its first investment, and the basis on which its performance is compared with peers.
- Adverse selectionThe problem that arises when the party with better information self-selects into a transaction, leaving the…
- CollateralAssets pledged to secure an exposure, reducing loss if the counterparty defaults.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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