Why Top Family Offices Are Quietly Investing in Private Credit

The numbers tell a compelling story. Family office investment strategies have shifted dramatically, with private credit becoming a portfolio cornerstone that demands attention. Family offices now allocate, on average, 42% of their portfolios to alternative investments, including private equity, real estate, hedge funds, and private credit. More than half (51%) of family offices surveyed feel bullish about private credit prospects, with nearly one-third (32%) planning to increase their allocations to this asset class in 2025-26—the highest percentage of any alternative strategy.

The private credit market's trajectory speaks for itself. The asset class has grown at 14.5% annually over the past decade and is now almost the same size as the public high yield bond market. H1 2025 alone delivered an impressive $124 billion in fundraising. The UK private credit market represents more than $99 billion in annual deal volume, with increasing focus on ESG and liquidity.

What makes this shift so appealing? Senior direct lending returns have remained resilient due to elevated yield starting levels, seniority in the capital structure, and underlying portfolio diversification. Family offices are becoming more selective about strategies, underlying securities, and investment vehicles. Understanding these market dynamics has become essential for wealth managers and investors ready to capitalize on this opportunity.

Family offices embrace private credit for portfolio optimization

Private credit delivers what family offices need most: higher returns paired with risk management in today's market environment. These sophisticated investors recognize that traditional asset classes alone cannot meet their multi-generational wealth preservation goals.

The investment patterns reveal a calculated shift toward alternative strategies that offer both yield and structural protection.

Private credit captures family office attention

Family offices have dramatically increased their exposure to alternative investments, which now constitute up to 54% of U.S. family office portfolios. Private credit has become particularly attractive within this allocation, with nearly one-third (32%) of family offices planning to increase their allocations to this asset class in 2025-26.

Fixed income gets a strategic overhaul

Family office fixed-income strategies have undergone a significant transformation. Where just last year nearly half (49%) reported average durations of less than two years across their fixed-income portfolios, today 72% say their average duration is now three-plus years. This strategic shift shows how family offices anticipated rate changes, effectively locking in higher yields before anticipated cuts.

Private credit often delivers higher returns than traditional fixed income, especially in low-yield environments. This addresses the multi-generational capital needs that family offices must manage. Private credit now comprises over 35% of alternatives allocations among surveyed family offices, a substantial increase from 22% in 2018.

Floating rates and senior positions provide protection

Private credit investments offer compelling structural advantages. Floating-rate credit structures provide natural insulation against interest rate volatility while eliminating duration risk. These instruments typically feature SOFR plus 3% to 7% spreads and embedded SOFR floors, delivering attractive risk/return profiles regardless of rate direction.

Senior private credit investments offer substantial protection through their position in the capital structure. As the senior-most debt in a private company's capital structure, these investments afford investors a first- or second-lien claim on collateralized assets. This positioning explains why 62% of family offices favor special situation debt, which is typically extended to companies undergoing restructuring.

Portfolio diversification drives allocation decisions

Private credit enhances portfolio diversification through its low correlation with public markets and other asset classes. This helps family offices build more resilient portfolios, especially during periods of market volatility.

The private credit market now stands at an estimated USD 1.20 trillion, with AUM increasing over 10% annually for the past decade. This growth reflects the asset class's ability to deliver:

• Steady income with low volatility that complements wealth preservation mandates
• Higher, more predictable yields compared to traditional fixed income
• Enhanced portfolio resilience during market uncertainty
• Access to specialized strategies unavailable in public markets

Family offices particularly value private credit's ability to perform through market cycles. When uncertainty grows in the economy and markets, it typically leads to greater opportunities in private credit. While traditional correlations often falter in times of turmoil, certain private credit strategies emerge as compelling defensive positions.

Family offices exercise caution amid the enthusiasm. Although 51% reported optimistic or bullish attitudes toward private credit, 21% expressed pessimism. This measured approach reflects concerns about deal quality as more capital chases limited opportunities. Family offices are embracing private credit primarily for its total return characteristics and yield advantages in an environment where traditional 60/40 portfolios no longer deliver sufficient returns.

Geographic patterns drive private credit strategies

Different regions approach private credit adoption with distinct philosophies and structural preferences. Markets across North America, Europe, and the UK have developed unique frameworks that reflect local regulatory environments, investor preferences, and capital market dynamics. Geographic diversification has become essential for investors seeking to optimize their private credit exposure across varying economic conditions.

Regional Markets Shape Private Credit's Future

North America continues to lead private credit adoption as the world's largest and most mature private debt market, with half of North American investors viewing private debt and credit alternatives as their top return opportunity. Other regions are rapidly developing their own distinctive approaches to this asset class.

UK pension schemes and semi-liquid vehicles

The UK pension market—the largest in Europe and second globally after the US at approximately £4 trillion—is experiencing a structural shift toward private credit. UK allocations average around 6%, with both defined benefit (DB) and defined contribution (DC) schemes actively increasing their exposure. This growth stems from rising demand for semi-liquid structures and strategies aligned to maturing pension profiles.

Semi-liquid vehicles in the UK typically blend infrastructure, real estate, and direct lending components. Assets in semi-liquid funds offering exposure to private assets approached USD 350 billion by the end of last year, with net assets increasing 60% since 2022.

Government efforts to consolidate Local Government Pension Schemes (LGPS) by March 2026 will accelerate this trend. Several pools are actively expanding their private markets offering:

• London CIV launched its first private debt fund in 2021 and is currently developing LCIV Private Debt Fund II
• ACCESS has been pushing into private markets with new mandates for infrastructure and real estate
• Border to Coast Pensions Partnership launched its 'UK Opportunities' portfolio in April 2024

Southern Europe's multi-sleeve mandates

Southern European investors deploy distinct strategies for private credit allocation. Italian allocations typically range from 3-4%, yet several schemes are poised to double their exposure. The Italian approach uniquely deploys multi-sleeve mandates that allocate across senior, mezzanine, and special situations debt.

Italian investors generally cap domestic allocations at 30-40%. Italian fund selection prioritizes ESG considerations, operational maturity, and co-investment experience—reflecting sophisticated credit market approaches despite lower overall allocation percentages compared to the UK.

Pan-European diversification strategies

Across Europe, private debt remains a clear second choice for income generation, selected by 43% of European respondents in investor surveys. The European private credit market offers compelling diversification benefits through its distinct legal and regulatory frameworks.

European private credit presents significant opportunity. Non-bank lending's share in Europe and the UK stands at just 12%—versus 75% in the US—making the region ripe for private credit expansion. At €440 billion, the combined European and UK direct lending market has already surpassed the region's high-yield market (€415 billion) and leveraged loan market (€310 billion).

Among pan-European selectors, portfolio diversification (74%) and high return potential (60%) were the most commonly cited benefits of investing in private assets. Familiarity with European Long-Term Investment Funds (ELTIFs) has increased significantly, with approximately 70% of pan-European selectors now familiar with the vehicle, up from around 50% last year.

European private credit investors are becoming more cautious. Private credit investors in Europe are abandoning leveraged plays due to potential default concerns. This prudent approach, alongside greater regulatory alignment through initiatives like the Savings and Investments Union, positions European private credit markets for sustainable long-term growth.

Evergreen Funds and BDCs Change the Game

Two investment structures have emerged to solve a persistent challenge: making private credit accessible to wealth owners who want exposure without traditional fund complexities. Evergreen funds and Business Development Companies (BDCs) represent a fundamental shift in how private credit reaches sophisticated investors.

Evergreen Funds and BDCs Change the Game

Two investment vehicles have reshaped how sophisticated investors access private credit markets: evergreen funds and Business Development Companies (BDCs). These structures solve accessibility challenges that have kept many investors on the sidelines.

What makes evergreen funds different?

Evergreen funds, also known as open-ended funds, represent flexible investment vehicles with no predetermined end date. Traditional private funds lock investors into fixed 10-12 year lifespans, but evergreen structures continue indefinitely, allowing investors to enter and exit periodically. These funds operate on a subscription basis, offering regular capital intake (daily, weekly, or monthly) that provides investors multiple opportunities to adjust their investments.

Accessibility drives their appeal. Investment minimums typically start around $25,000 compared to $5 million for traditional closed-end funds. New subscriptions gain immediate exposure to already established private debt portfolios, eliminating the wait for deployment that plagues traditional structures.

BDCs solve wealth management friction

Business Development Companies (BDCs) have become essential tools for high-net-worth individuals seeking private credit exposure. These structures address pain points that traditional private credit vehicles create.

BDCs eliminate operational headaches through practical design. Quarterly distributions, investment minimums as low as $10,000, quarterly liquidity through share tenders, and 1099 tax reporting instead of K-1s make them attractive for accredited investors who want consistent exposure without managing capital calls or lengthy lock-ups.

Immediate yield satisfaction appeals directly to wealth preservation-focused investors. Complex tax and cash management issues disappear while liquidity remains available when needed, explaining their popularity with wealthy individuals.

Asset growth tells the story

The numbers demonstrate dramatic expansion. Evergreen funds now manage over $500 billion in assets, reflecting surging demand among high-net-worth investors for private credit exposure. The BDC market has flourished alongside this growth, reaching an aggregate asset portfolio of $440 billion by year-end 2024—nearly doubling since 2021.

Perpetual-life non-listed BDCs show particularly impressive momentum. Assets in these vehicles jumped 50% year-over-year, from $85 billion in 2023 to nearly $128 billion in Q1 2024. This growth represented 69% of the $65 billion expansion in the overall BDC market over the past year.

Blackstone Private Credit Fund (BCRED) exemplifies this success. As the first-ever perpetual-life non-traded BDC, it manages $56.8 billion, dwarfing publicly listed counterparts like Ares Capital Corporation with $24.3 billion.

Private Credit Fundraising Reaches New Heights

The private credit market continues its remarkable ascent, with record-breaking fundraising activities and institutional allocations that signal unwavering confidence in this asset class.

Record-breaking H1 2025 fundraising

Private credit fundraising has reached new heights in 2025. The first half of the year saw a remarkable USD 124.00 billion raised—a 50% increase above H1 2024's total of USD 82.00 billion. Q1 2025 alone accounted for USD 72.00 billion, marking it as the busiest single quarter in at least two years and the busiest first quarter ever recorded. This surge follows a strong 2024, which closed with USD 210.00 billion in total private credit fundraising, exceeding the previous year's USD 198.00 billion. The momentum behind investing in private credit continues to accelerate at an impressive pace.

Mega-funds and institutional confidence

Mega-funds now dominate today's private credit market:

• Ares Capital Europe VI closed at €17.1 billion (USD 18.80 billion)
• Oaktree Opportunities Fund XII secured USD 16.00 billion

42% of global private capital fundraising flows to funds targeting USD 5.00 billion or more—despite these mega-funds representing less than 4% of all strategies. Institutional investors prioritize established managers, with 84% of all money raised in 2024 going to firms established before the financial crisis. This preference for experienced managers coincides with substantial private equity dry powder, forecast to reach a record high USD 1.60 trillion by the end of 2024.

Direct lending vs. specialty finance

Direct lending dominated 2024's fundraising, accounting for 65% of the total. Specialty finance strategies are rapidly gaining ground. Asset-based finance has become increasingly important as banks retreat from riskier credit exposures. Investment grade private credit is attracting insurance companies seeking higher yields. Opportunistic and hybrid capital strategies are expected to expand, providing creative solutions for borrowers seeking refinancing in higher-rate environments.

Private Credit Market Risks Demand Attention

Several concerning trends are emerging across the private credit landscape that require careful monitoring.

Borrower stress signals intensify

Signs of elevated stress are becoming visible across the USD 1.70 trillion private credit landscape, with default rates rising and more borrowers deferring cash interest payments . Payment-in-kind (PIK) features—where accrued interest adds to the loan's outstanding balance rather than being paid in cash—signal liquidity challenges. This arrangement increases the total debt burden, making future repayment more difficult . Prudent investors consider PIK income exceeding 10% of total income as higher risk . Of eight corporate defaults in Q2 2025, three stemmed directly from interest deferrals and PIK implementation .

Interest coverage deterioration accelerates

Interest coverage ratios (adjusted EBITDA divided by interest expense) have deteriorated markedly as borrowing costs surged. Average coverage peaked at 3.5x in Q4 2021, falling to 1.8x by Q2 2025 . The percentage of borrowers with ratios below 1.5x has exploded from 7% to 42% during this period . This concentration around the 1.0-1.5x range creates significant risk, as companies have minimal cushion against further financial stress .

Liability management transactions mask deeper problems

Liability management transactions (LMTs) represent a growing but underappreciated risk within private credit. These restructurings typically:

• Benefit certain lenders at others' expense
• Focus more on improving liquidity than reducing overall debt
• Rarely solve underlying capital structure problems

Among 38 LMTs tracked since 2017, 13 firms (37%) eventually filed for bankruptcy anyway, while only 14% avoided subsequent default . First-lien recovery expectations for disadvantaged lenders were slashed by nearly 70 percentage points on average , highlighting how these "hidden defaults" can substantially impair returns for unwary investors.

Where family offices go from here

Private credit has earned its place as a portfolio essential for family offices worldwide. The 14.5% annual growth over the past decade reflects genuine staying power, not market hype.

The appeal centers on tangible benefits. Higher returns than traditional fixed income address multi-generational wealth preservation needs. Floating-rate protection and senior capital structure positions offer downside protection when markets turn volatile.

Geographic diversification matters more than ever. North American markets lead adoption, but European strategies present distinct opportunities. UK semi-liquid vehicles blend infrastructure with direct lending, while Southern European investors deploy multi-sleeve mandates across senior, mezzanine, and special situations debt.

Evergreen funds managing over $500 billion and BDCs reaching $440 billion have changed the game for wealthy individuals. Lower minimums, simplified tax reporting, and improved liquidity eliminate traditional barriers to entry.

Yet caution pays dividends. Rising defaults, increased payment-in-kind usage, and deteriorating interest coverage ratios demand attention. Liability management transactions often create illusions rather than solutions. Due diligence becomes your strongest defense.

Family offices will continue building private credit allocations. Those who balance opportunity with risk assessment stand to benefit most from this maturing asset class. Traditional 60/40 portfolios no longer deliver adequate returns. Private credit offers a compelling path forward—for investors who remain selective about strategies, underlying securities, and investment vehicles.

Ready to evaluate private credit for your portfolio?

FAQs

Q1. Why are family offices increasingly investing in private credit? Family offices are turning to private credit for higher returns compared to traditional fixed income, better portfolio diversification, and protection against market volatility. The asset class offers attractive risk-adjusted returns and senior positions in capital structures, making it appealing for wealth preservation and growth.

Q2. What are the key advantages of private credit investments? Private credit investments offer several benefits, including higher yields than traditional fixed income, floating-rate structures that protect against interest rate volatility, and senior debt positions that provide downside protection. Additionally, they offer uncorrelated returns, enhancing overall portfolio resilience.

Q3. How are evergreen funds and BDCs changing private credit accessibility? Evergreen funds and Business Development Companies (BDCs) are democratizing access to private credit markets. They offer lower investment minimums, improved liquidity options, and simplified tax reporting compared to traditional private funds. This has made private credit more accessible to high-net-worth individuals and smaller investors.

Q4. What geographic trends are shaping private credit adoption? While North America leads in private credit adoption, different regions are developing unique approaches. The UK focuses on semi-liquid vehicles blending infrastructure and direct lending, while Southern European investors prefer multi-sleeve mandates across various debt types. Pan-European strategies are also gaining traction for diversification benefits.

Q5. What risks should investors be aware of in the private credit market? Investors should be cautious of rising default rates, increased use of payment-in-kind (PIK) features, and declining interest coverage ratios. Liability management transactions can also mask underlying problems. Thorough due diligence is crucial to navigate these risks and capitalize on the opportunities in private credit.