Key points
Private credit is now a core allocation for many professional investors. As the market has grown, capital has piled into a narrow set of strategies, while other parts of the credit market remain thinly funded and poorly understood.
Most of that capital has gone into sponsor-backed, mid-market direct lending. It is familiar, scalable and easy to explain to an investment committee. The result is a segment that looks crowded: spreads have tightened, structures have weakened and competition for deals is intense. Against that backdrop, how private credit is packaged has become as important as what it lends against.
This guide explains how private credit exposure is delivered through structured credit, from credit linked notes to securitisation compartments and tranching, and what each layer means for an investor.
Why packaging matters in private credit
There are two broad ways for an investor to own private loans. The first is through a fund: you commit capital, the manager builds a portfolio over several years, and you own a share of whatever results. The second is through a structured note: you buy an instrument linked to a specific, identified loan or loan book, under documents that set out exactly how cash moves.
| Feature | Private credit fund | Structured note (e.g. CLN) |
|---|---|---|
| What you own | A share of a portfolio still being built | A note linked to a defined loan or facility |
| Asset visibility | Blind or semi-blind pool at commitment | Assets and eligibility criteria set up front |
| Cashflows | Distributions at manager's discretion within fund terms | Coupon and repayment set by the note terms |
| Ring-fencing | Fund vehicle | Bankruptcy-remote vehicle or compartment |
| Settlement and custody | Subscription documents, transfer agent | ISIN, settled through clearing systems |
| Exit | Redemption windows or secondary sale | Usually held to maturity |
Neither route changes the underlying credit risk. What changes is how that risk is accessed, reported and governed.
The building blocks of structured private credit
The underlying loans
Everything starts with the assets. In asset-based private credit these are usually receivables, consumer or SME loan books, or the lending portfolios of non-bank lenders. Repayment is driven by observable activity: invoices being paid, loans amortising, contracts settling. That differs from a sponsor-backed loan, where repayment often depends on the borrower's ability to refinance at maturity.
The securitisation vehicle and its compartments
The loans, or the facility secured on them, sit in a separate legal vehicle so that investors are insulated from the insolvency of the originator. Luxembourg is the most widely used jurisdiction for this in Europe. Under its 2004 securitisation law, modernised by legislation that came into force in March 2022, a single securitisation company can create multiple compartments, each holding its own assets and liabilities, ring-fenced from the others. One vehicle can therefore host many separate transactions. Our explainer on the Luxembourg securitisation vehicle covers the legal detail.
The notes
The compartment issues notes to investors. A credit linked note is the most common format in private credit: a debt security whose payments depend on the performance of a referenced loan, facility or portfolio. Because the note carries an ISIN and settles through standard clearing systems, investors and their custodians can hold it like any other security. Our explainer on what an ISIN is covers how that works.
Tranching and the waterfall
Where there is more than one class of investor, the notes are tranched. Senior notes are paid first and absorb losses last; junior notes, or the originator's own retained equity, sit beneath them as a cushion. A written waterfall sets the order of payments. Our guide to the capital stack explains why that position decides outcomes.
At Kingsbury & Partners we lend to lenders. We provide senior secured facilities to non-bank lenders, specialty lenders and growth-stage businesses, typically first institutional credit lines of roughly $5–25M, structured through bankruptcy-remote credit linked note compartments of our Luxembourg vehicle, Kingsbury Securitisation Platform SARL, and placed with professional investors, family offices and financial intermediaries.
The opportunity most investors skip past
The crowding in sponsor-backed lending shows up in pricing. McKinsey, citing Kroll StepStone benchmarks, reports that the median spread on new direct loans fell from 716bps at its March 2023 peak to 544bps at the end of 2025, according to ABF Journal. More capital chasing the same deals has meant thinner compensation and looser terms.
Meanwhile banks have pulled back from large parts of the real economy. Growth-stage businesses, specialist lenders and non-bank finance platforms often struggle to raise capital through conventional channels, even when they are backed by real assets and recurring cashflows. This is where asset-based private credit lives: receivables finance, loan portfolio funding and lending to non-bank financial institutions. These strategies are long established. What has changed is that they can now be accessed through institutional-grade structures in place of one-off bilateral arrangements.
Our piece on family offices and the mid-market allocation trap explores why so much capital ends up in the same place.
Why structure matters more than yield
Many asset-based strategies offer yields that look attractive next to public markets and mainstream private credit. Yield is the wrong place to start. The real question is whether the risk is understandable and whether it can be monitored.
A well-structured note forces discipline. Assets are defined up front. Eligibility criteria are set. Cashflows are controlled, often through accounts the lender cannot freely draw on. Reporting is regular. If something goes wrong, there is a process to follow.
None of that removes risk. Credit risk is still credit risk. Servicers can underperform, collections can slow and legal frameworks matter. The structure makes those risks visible earlier and easier to act on. Our credit risk and credit linked notes FAQs set out what that looks like for a noteholder.
Governance and due diligence
Asset-based strategies can look simple on paper and disappoint quickly if underwriting standards slip or servicing quality deteriorates. Governance matters more here than in plain corporate lending.
At Kingsbury & Partners, structured credit transactions are reviewed asset by asset, not only at headline level. Cashflow mechanics, concentration limits, stress scenarios and servicing arrangements are examined before capital is committed, and ongoing reporting is treated as a requirement. The aim is to make private credit behave like a disciplined capital markets product, with documents doing the work that goodwill does in a handshake deal. We call it "protection by design".
What this means for investors
For family offices and professional investors, structured asset-based credit is rarely a replacement for core private credit holdings. It is a complement. It sits alongside direct lending, real assets and fixed income, providing income and diversification, because the drivers of repayment are different from those of sponsor-backed corporate loans.
In practice, investors use these structures to reach parts of the credit market that are too small, too operational or too specialised for large funds to pursue efficiently. Before committing, check what the note is linked to, how the vehicle is ring-fenced, where your position sits in the waterfall, who services the assets and what you will be told, and how often. For an overview of the wider asset class, start with our guide to what structured credit is; advisers will find the allocation and suitability questions covered in why independent wealth managers are turning to structured credit.
Private credit will keep growing. Its next phase is likely to be defined by investors becoming more selective about where returns come from, and by structures that let capital reach overlooked parts of the market without giving up control.
Frequently Asked Questions
What is structured private credit?
It is private lending delivered to investors through a structured instrument, usually a note issued by a securitisation vehicle, with defined assets, a payment waterfall and regular reporting.
How is private credit securitised?
A loan or loan book, or a facility secured on it, is placed in a bankruptcy-remote vehicle or compartment, which issues notes to investors. Collections from the loans pay interest and principal on the notes in the order set by the documents.
What is a securitisation compartment?
A ring-fenced part of a securitisation company that holds its own assets and liabilities, separate from the company's other compartments. Luxembourg law allows one vehicle to host many compartments, each for a different transaction.
Is a credit linked note safer than a private credit fund?
Not inherently. The credit risk depends on the underlying loans; a note offers greater asset visibility and defined cashflows, while a fund offers broader diversification and professional portfolio management.
What is the difference between direct lending and asset-based lending?
Direct lending usually funds a company against its earnings, often to support a private equity buyout. Asset-based lending is secured on specific assets such as receivables or loan books and repaid from the cash those assets generate.
Can I sell a structured private credit note before maturity?
Sometimes, but there is rarely an active secondary market. Investors should assume they will hold to maturity and size the allocation accordingly.