Private Credit AIF Returns: Is 12–14% Really Net?
Understanding the Credit Return Engine
A quoted 12–14% can describe a coupon, gross portfolio yield, target IRR or expected net return. Those are not interchangeable. The investor should identify the cash-flow definition before comparing the number with an FD, bond or debt mutual fund.
Reading Protection, Cash Flow and Structure
Coupon is contractual interest at the borrower level.
Fund return also reflects deployment time, defaults, recoveries, fees, expenses and carry.
Investor IRR depends on the timing of calls and distributions.
Where Credit Risk Becomes Capital Loss
A high coupon can compensate for high risk rather than create excess return.
Accrued interest may raise NAV without producing cash.
Temporary idle cash can dilute the realised fund return.
Making the Allocation Decision
Before acting, answer five questions in writing: ask for a gross-to-net bridge; separate cash coupon from accrued income; review realised defaults and recoveries; check deployment assumptions; and model tax using the actual income character.
A return is credible only when its definition, timing and deductions are visible.
Key takeaways
- Coupon is contractual interest at the borrower level.
- A high coupon can compensate for high risk rather than create excess return.
- A return is credible only when its definition, timing and deductions are visible.
Related questions
What should an investor verify first?
Coupon is contractual interest at the borrower level.
How does the structure affect the investor’s outcome?
Fund return also reflects deployment time, defaults, recoveries, fees, expenses and carry.
What is the main downside to test?
A high coupon can compensate for high risk rather than create excess return.
How should the final decision be made?
A return is credible only when its definition, timing and deductions are visible.
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