Private Credit vs Private Equity: What Is the Difference?

TL;DR

• Private credit is lending to a company outside the bank system. Private equity is buying ownership of a company. Both sit in private markets, in opposite seats at the table.
• Lenders earn contractual interest and are due their money back by a set date, if the borrower can pay. Owners earn nothing fixed and are paid mainly from growth in value, through a sale, listing, recapitalization or distributions.
• Debt ranks ahead of equity, and secured debt ranks ahead of unsecured and subordinated debt. That typically makes private credit the lower-risk, capped-upside position and private equity the higher-risk, open-upside one, though subordinated or unsecured debt can still lose heavily.
• Both are illiquid, but private equity usually locks money up longer. Private credit funds managed over $2.5 trillion globally by early 2025, per the BIS.
• The line is blurring: the biggest private equity firms now run credit businesses as large as their buyout arms, and they often sit in the same company at different layers.

What Is the Difference Between Private Credit and Private Equity?

The difference between private credit and private equity is what you own. Private credit investors lend to a company and are due interest and their principal back by a set date, if the borrower can pay. Private equity investors own a share, rank behind lenders and are paid mainly from growth in value, through a sale, listing, recapitalization or distributions.

Both live in private markets, meaning the investments are negotiated directly and not traded on a stock exchange. Private credit, also called private debt, is lending by non-bank funds. If you are new to it, start with our guide to what private credit is and how it works.

Private capital is the umbrella term for investments made outside public markets: it covers private equity, private credit and, in most definitions, real assets such as real estate and infrastructure.

Here is private credit vs private equity, side by side.

[[ IMAGEM TABELA 1: table-1-private-credit-vs-private-equity.png ]]

Sources for the table: Federal Reserve FEDS Notes (February 2024), BIS Quarterly Review (March 2025) and the SEC's Investor.gov, all linked below.

What You Own and How You Get Paid

A private credit investor owns a promise to be repaid; a private equity investor owns a piece of the business. Everything else in the comparison follows from that one difference.

A private credit loan is written as a contract. The Federal Reserve describes it as debt provided by non-bank funds to private businesses, with terms negotiated directly between borrower and lender, and notes that almost all private credit loans are floating rate. Floating rate means the interest moves with a benchmark such as SOFR, the main US reference rate.

A private equity fund works the other way. According to the SEC's investor site, a typical strategy is to take a controlling interest in an operating company and actively manage it to increase its value. The return arrives when the fund sells the company, lists it, or sells its stake to another investor.

Now what? When you look at any private markets product, ask one question first: am I a lender or an owner? The answer tells you how you will be paid and when.

Where Each Sits in the Capital Stack

The capital stack is the order in which a company's investors get paid. Private credit ranks above equity, so lenders have a claim to be repaid before owners see anything. That ordering is the main reason the two carry different risk, and within debt, secured loans rank ahead of unsecured and subordinated debt.

Think of the stack as floors in a building. Senior secured loans are on top, backed by the company's assets, and junior or subordinated debt comes next. Equity is the ground floor and absorbs losses first.

The SEC's investor bulletin on bankruptcy puts it plainly: common stock, or equity, is the last in line to receive what is left, and creditors all come before shareholders. Some private credit sits lower in the stack. The BIS notes that mezzanine lending, a form of junior debt that often comes with rights to buy equity, bridges the gap between debt and equity.

The same logic applies inside a single credit fund or vault. Capital can be split into senior and junior layers, called tranches, where the junior layer takes first loss.

Returns and Risk: Who Earns More and Who Loses First

Private equity aims for higher returns because it takes the first loss and has no ceiling. Private credit typically aims for steadier returns because its upside stops at the interest rate and equity absorbs losses first. That pattern has exceptions: subordinated or unsecured debt can still lose a large share of its value.

Private credit has still paid more than public loans. Over the past decade, direct lending, the largest private credit strategy, has generated returns 2-4 percentage points above syndicated leveraged loans, according to the same February 2024 Fed note. Borrowers pay that premium for speed, flexible terms and certainty of execution.

Senior lenders can still take large losses. The Fed found that the post-default value of a direct loan was around 33%, compared with 52% for syndicated loans and 39% for high-yield bonds. Seniority decides the order of payment; the quality of collateral and the borrower's cash flow decide how much comes back.

Two more risk signals from that note are worth knowing:

• Interest coverage, a company's earnings divided by its interest bill, averaged around 2.0x for private credit borrowers, below about 2.7x for leveraged loan borrowers.
• Default rates were low through 2023, but the authors add that the industry "has yet to go through a prolonged recession."

Private equity risk is different in kind. An equity holder can lose the whole investment if the company fails, and the result is unknown until exit. Neither asset class is risk free, and private loans are often valued with models rather than market prices, which is why private credit needs a different kind of transparency.

Regulators outside the US are watching too. The Bank of England said in December 2025 that private markets "have not been tested through a broad-based macroeconomic stress" at their current size.

Liquidity, Holding Period and Fees

Both are illiquid, but private equity usually ties up money for longer. Private credit returns cash along the way through interest; private equity mostly returns it at the end.

The BIS describes most private credit funds as closed-end vehicles that lock in capital for five to eight years, roughly matching the life of their loans. The Fed puts average private credit maturity at around five years. Private equity funds, per the SEC, often have an investment horizon of 10 or more years and restrict withdrawals.

There are exceptions. In the United States, business development companies (BDCs), funds that lend to and invest in small and mid-sized private companies, can list their shares on an exchange. The BIS counts over $300 billion in BDC assets, about 20% of the US private credit market.

Fees follow a similar model in both: a management fee plus, often, a performance fee, set in the fund's offering documents. The SEC urges investors to be vigilant about fees and expenses, because they can be layered across the fund and its portfolio companies.

Worked Example: One Company, Financed Both Ways

The clearest way to see the difference is to finance the same company twice and compare the outcomes. All numbers below are illustrative and simplified. They are not a forecast or an offer.

A regional logistics company worth $15 million needs $10 million to buy trucks and a warehouse. It has two choices:

• Option A, private credit: a fund lends $10 million for five years at an illustrative 10% interest, paid yearly, with the principal due at the end. The founders keep 100% of the company.
• Option B, private equity: a fund invests $10 million for a 40% stake (the company is valued at $25 million after the cash comes in). There is no interest; the fund is paid when it sells its stake.

Here is what each investor collects under four illustrative outcomes.

[[ IMAGEM TABELA 2: table-2-worked-example-outcomes.png ]]

Notice three things. The lender's best case equals its on-plan case, so upside is capped, but it gets cash every year while the PE fund waits for the sale. In the bad cases, the lender loses less because it ranks ahead of owners.

Simplifications: no fees, taxes, other creditors or later funding rounds. In real distress, legal costs and other claims would reduce what both collect.

Now what? Read the distress row before the strong-growth row.

Who Invests in Each

Both asset classes draw mostly on large institutions with long horizons, and both are opening to individuals. The Fed lists pension funds, insurers, family offices, sovereign wealth funds and high-net-worth individuals as the main investors in private credit funds. They come for diversification and income.

In the euro area, the European Central Bank estimates (May 2026) that insurers hold roughly €211 billion of private credit exposures and pension funds about €52 billion.

Private equity funds are typically open only to accredited investors and qualified clients, meaning institutions and individuals above income or wealth thresholds. Many people hold both indirectly through a pension plan or an insurance policy.

Those thresholds are US rules. In the EU, the European long-term investment fund (ELTIF) can hold both company loans and equity and be sold to retail investors, and its 2023 reform, applied from January 10, 2024, dropped the earlier €10,000 minimum for smaller savers. In the UK, the FCA's Long-Term Asset Fund (LTAF), an open-ended fund for illiquid assets including private debt and private equity, can be sold to mass-market retail investors, with restrictions, since July 2023.

Retail access is growing. The BIS notes that managers are testing "evergreen" and "interval" funds, which allow regular partial withdrawals, and warns that newer investors may be less aware of concentration risks in individual funds.

Why the Line Between Private Credit and Private Equity Is Blurring

The same firms now run both businesses, and they often finance the same companies from different floors of the capital stack. Private equity and private credit work as neighbors in the same capital stack.

Start with the borrowers. In the Fed's sample of about 17,000 US private credit loans, the majority of borrowers were backed by a private equity sponsor, and buyouts were among the top uses of the money. A typical buyout uses a private equity fund for the equity and a private credit fund for the loan.

Then look at the managers. In its second quarter 2026 results, Blackstone, best known for private equity, reported $469.3 billion of assets in credit and insurance, more than the $454.2 billion in its private equity segment. The Fed also lists Oaktree, Ares, Goldman Sachs, HPS and Blackstone among the largest US private credit managers.

The products blur too. The Fed notes private credit contracts can include "a structured equity component," and mezzanine debt often carries equity rights. When the same firm sits on both sides of a deal, conflicts of interest matter, and the SEC flags them as a key private fund risk.

Where CREDI Fits

CREDI is infrastructure for private credit: an on-chain layer that gives liquidity providers (LPs), the investors who supply capital, access to high-quality private credit through vaults. LPs act as lenders. The return comes from financing real receivables.

LPs provide capital in stablecoins, digital tokens such as USDC that are designed to track the US dollar one to one. In the first fully integrated vertical, on-chain receivables, payment partners use that capital to shorten the time merchants wait for card settlement, and the financing is repaid when the card payment settles.

CREDI does not lend to merchants directly; there is always a partner in between.

This is a narrower kind of private credit than buyout lending: short-dated and repaid by payment flows. CREDI separates capital into senior and junior layers, so losses hit the junior layer first.

Risks remain. Partners can fail, settlement can be delayed and on-chain infrastructure has its own risks. For the mechanics, read what on-chain private credit is and how it works.

Frequently Asked Questions

Is private debt the same as private credit?

Yes. "Private debt" and "private credit" are used interchangeably. The Federal Reserve defines both as debt-like, non-publicly traded instruments provided by non-bank lenders to private businesses.

Can a private credit investor end up owning the company?

Sometimes. If a borrower defaults, lenders may take control through a restructuring, and some loans carry warrants (rights to buy shares). That is a recovery path; lenders who want equity upside usually hold mezzanine debt, which is priced for more risk.

Is private credit lower risk than private equity?

Generally yes, because lenders rank ahead of owners. Private credit still carries real risk. The IMF notes that private credit borrowers tend to be smaller and carry more debt than companies that use leveraged loans or public bonds, and a senior loan can still lose most of its value in default.

Is private credit part of private equity?

No. Private credit is a separate asset class: lenders hold loans, while private equity investors own shares. Both sit under the umbrella of private capital, or private markets, and many private equity firms also run private credit arms, which is why the two are often confused.

Why do private equity firms run private credit funds?

Because buyouts need debt and many investors want income. A firm that already studies companies as an owner can reuse that analysis as a lender, and it earns fees on more than one layer of the capital stack. That overlap is also why conflicts of interest deserve close attention.

How does on-chain private credit differ from a traditional private credit fund?

The lending is the same idea: capital goes to real borrowers or receivables and earns interest. The difference is the rails: on-chain funds take stablecoins and record positions on a blockchain, which can make flows easier to verify. Our on-chain private credit guide covers the trade-offs.

See How CREDI's Private Credit Infrastructure Works

Private equity bets on what a company could become. Private credit is paid from what a business already earns. If you want the second kind, with a structure you can inspect, see how CREDI's private credit infrastructure works.

This article is for information only and is not financial, investment or legal advice.