What is Private Debt?

April 27, 2023
Estimated Reading Time: 5 Minutes
Investing in private debt can be an attractive option for those seeking potentially higher returns than traditional fixed income investments, such as bonds, while also diversifying their investment portfolio. Private debt is generally defined as debt that is not publicly traded, and is typically provided by private companies or investors rather than banks or other financial institutions. In this blog post, we'll explore the basics of investing in private debt, including what it is, how it works, and some key considerations to keep in mind.

What is Private Debt?

Private debt is essentially any form of debt that is not issued or traded on a public market. This can include various types of loans, including senior secured loans, mezzanine debt, and subordinated debt. Private debt can be provided by private equity firms, institutional investors, or individual investors. Because private debt is not publicly traded, there can be sometimes be an "illiquidity premium," which is the potential for higher returns in exchange for the illiquidity of the investment.

How Does Private Debt Work?

When an investor invests in private debt, they are essentially providing a loan to a private company or borrower. The borrower agrees to pay interest on the loan and to repay the principal amount at a future date, typically over a period of several years. Private debt can be structured in a variety of ways, with different levels of risk and return. For example, senior secured loans are generally considered to be less risky than subordinated debt, but also offer lower returns.

Key Considerations for Investing in Private Debt:

Before investing in private debt, it's important to understand some of the key considerations and risks associated with this type of investment.


As with any investment, there is always a risk of losing money when investing in private debt. Because private debt is not publicly traded, it can be more difficult to assess the creditworthiness of the borrower and to monitor the performance of the investment.


Private debt is generally illiquid, meaning that it cannot be easily bought or sold on a public market. Investors should be prepared to hold their investment for several years and should not expect to be able to sell their investment quickly. Thus, private debt investments are usually more suitable for long -term investors.


As with any investment portfolio, it's important to diversify your investments across different asset classes and industries. Investors should consider investing in private debt as a small portion of a well-diversified portfolio.


Private debt investments can be subject to higher fees than traditional fixed income investments. Investors should carefully review the fees associated with any private debt investment before making a decision to invest.

Consult a Financial Professional

Investing in private debt can be complex and requires a significant amount of due diligence. Investors should consider seeking the advice of a professional financial advisor before investing in private debt. A financial advisor can help you determine your goals, objectives, and risk tolerance, and therefore help determine whether a private debt investment is right for you. Many Chicago Partners clients have private investments that are specifically tailored to their financial goals and objectives, and each investment must be carefully analyzed in order to determine if it is a fit for an investor’s unique financial situation.

Investing in private debt can be an attractive option for those seeking potentially higher returns than traditional fixed income investments, while also diversifying their investment portfolio. However, as with any investment, there are risks associated with investing in private debt, including credit risk, illiquidity, and fees. Investors should carefully consider these risks and seek the advice of a professional financial advisor before making any investment decisions. If you are interested in exploring private debt options, you can use this form to send our advisors a message.

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