Private-credit due diligence: five checks beyond the coupon

01

Define the market figure before using it

The Financial Stability Board’s report of 6 May 2026 estimates private credit at US$1.5–2 trillion at end-2024 using data from the jurisdictions covered. It uses a relatively narrow direct-lending definition and identifies data gaps. The range is neither a live 2026 figure nor a complete global total for every private-debt strategy.

For a family, the more useful question is how its own instrument works. The checks below are G70’s approach to reviewing documents. They do not describe any particular fund’s terms or recommend an investment.

02

1. How much income becomes cash available to investors?

Establish what the quoted yield measures: underlying loan coupons, a fund return before fees or money actually paid to investors. Separate cash interest from payment-in-kind (PIK) interest. PIK generally adds interest to the amount owed; recognising income does not mean the borrower paid cash during the period.

Ask the manager to reconcile loan income to fund distributions, showing cash interest, PIK, fees, financing costs and any other distribution sources. G70’s comparison criterion is straightforward: where a family needs income for living or business expenses, compare cash received and its sustainability. Accounting income cannot replace the ability to make a payment.

03

2. Will operations repay the debt, or is refinancing essential?

Review the borrower’s maturity schedule, interest coverage and cash flow, particularly whether operating cash flow after necessary capital expenditure can pay interest. “Senior secured” does not establish who owns the collateral, which claims rank ahead or which legal steps enforcement requires.

Consider a stress example without assumed numbers: sales fall while the rate on a floating-rate loan does not. Both changes squeeze interest-paying capacity. Ask the manager to show cash flow, potential covenant triggers and remedies under that scenario. If the answer relies entirely on refinancing at maturity, include a case in which new financing is unavailable.

04

3. Does a steady NAV reflect stable cash flow or slower repricing?

Both the FSB and IMF identify concerns about valuation transparency. Infrequent transactions do not establish an unchanged economic value. Compare the borrower forecasts, discount rates and credit judgments used at successive valuation dates and ask what supports each change.

Ask how the valuation process handles a loan with delayed payments or renegotiated terms, and who can challenge the manager’s assumptions. This tests the process without requiring disclosure of other investors’ confidential information. Deteriorating borrower cash flow alongside an unchanged value requires a reviewable explanation; “held to maturity” is not sufficient by itself.

05

4. Does a redemption window promise a payment date?

Read the application window separately from the payment obligation. Notice periods, gates, suspension rights, queues and in-kind distributions affect the amount and timing available. One fund’s rules cannot be assumed for another. The FSB also identifies potential mismatch between redemption options and illiquid loans.

Run a family cash test: redemptions are delayed, while business funding, tax bills or other funds’ capital calls fall due as planned. What pays the shortfall? If the answer is new bank borrowing, test falling collateral values or a reduced credit line as well. Redemption windows cannot substitute for the family’s own liquidity reserve.

06

5. Do different fund names hide the same underlying risk?

Aggregate major borrowers, sectors, countries, loan ranking and financing arrangements across funds, then compare them with the family business and other investments for which look-through information is available. Several holdings dependent on the same industry demand, funding channel or borrower may offer less diversification than their product names suggest.

Record exposures that cannot be identified as unknown; do not treat missing information as evidence of no overlap. G70 can coordinate information, family funding needs and professional review. Product suitability, investment advice and transactions must be handled independently by the relevant licensed institutions separately appointed by the client.

G70

G70 coordination

Turn five checks into reviewable answers

The aim is evidence and consequences, not a completed-diligence label.

1. Does the income reconciliation separate cash, PIK, fees and distributions?
2. Who reviews stressed repayment and valuation assumptions?
3. Which funds are actually available if redemption payments are delayed?
4. Are overlapping and unidentified exposures recorded?

Sources

Official and primary sources

1. FSB | Report on Vulnerabilities in Private Credit — 6 May 2026
2. FSB | Full report — definition, PIK, valuation, leverage and liquidity
3. FSB | Press release — 6 May 2026
4. IMF | Global Financial Stability Report, April 2024 — Chapter 2

Originally published on 5 August 2026. The primary sources listed were checked again and this article revised on 21 October 2026. Policies and information may subsequently change.