Private credit is most commonly associated with corporate direct lending, but the asset class more generally includes any type of privately negotiated lending strategy where returns are derived at least in part, if not in whole, from contractual income. 
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Direct lending refers to the senior secured loans that fund the “leveraged” part of leveraged buyouts. The direct lending category of private credit is therefore directly related to the private equity market, and the direct lending market has grown enormously alongside the private equity market over the past two decades.
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In a typical private equity leveraged buyout transaction, the private equity investor (“sponsor”) purchases a company in whole through a combination of debt and equity. For larger buyout transactions, sponsors typically use the broadly syndicated loan market to finance the debt portion. In this type of financing, banks lend from their balance sheets and then syndicate the loans (also known as leveraged loans), which are purchased by multiple investors (hence “broadly syndicated loans”) and can be traded in secondary markets. For smaller and medium sized transactions, known as middle market private equity, non-bank private credit lenders negotiate with the sponsor to directly provide the full amount of debt required (hence “direct lending”).
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As a general rule of thumb, broadly syndicated loans are more borrower friendly than direct loans, with a cheaper cost of capital and looser debt covenants. Direct lenders, however, can offer sponsors greater speed and certainty of capital, particularly in periods in which public credit markets are experiencing greater volatility. Direct lenders can also be more flexible in accommodating more buyout complex transactions or transactions that anticipate a high degree of future merger and acquisition activity (i.e., “buy and builds”). In return for speed, certainty, and flexibility of capital, direct lenders are able to negotiate higher rates, more restrictive covenants, and exercise greater lender controls, particularly in the downside case of a workout (i.e., bankruptcy or restructuring) process.
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Both leveraged loans and direct loans are floating rate loans issued at SOFR (Secured Overnight Financing Rate) plus a spread¹. In contrast, bonds (including high yield, investment grade, munis, etc.) are fixed rate debt instruments. Direct lending therefore can serve as a hedge against rising interest rates and inflation.
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As noted above, direct lending rates are generally higher than that of leveraged loans, meaning that the spreads are wider and the total yield is higher. Of course, not all direct lending strategies are equal, and as with all credit investments, Ivy Invest closely evaluates each manager’s experience in sourcing, underwriting, documentation, monitoring, and workout processes.
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In addition to corporate direct lending funds, the Fund may also invest in asset-based strategies. Asset-based investing is exactly what it sounds like: a private credit firm provides a loan using assets as collateral or invests directly in assets that produce income. The nuance here is that the assets are typically cash flow-generating (with a consistent or predictable cash flow profile – very important!) or have an inherent liquidation value and clear path to liquidity. For instance, a lot has been written in the press about large transactions involving music rights. The splashy, high dollar transactions make the news, but the majority of music royalty investments are in older musicians or bands with large bodies of work that generate consistent licensing revenues and therefore consistent cash flows (i.e., income).

There is an incredibly wide range of asset-based strategies. A sampling includes: equipment leasing, aircraft leasing, music/TV/film royalties, pharmaceutical royalties, litigation finance, rediscount lending, receivables (tax receivables, supplier receivables, government contractor receivables, etc.), and more! If an asset can be reliably valued/monetized or has a predictable cash flow profile, somebody has probably figured out how to lend against or invest in it.