Hidden risks for private credit investors

Fast-growing asset class rewards long-term commitment if deals are carefully structured. By Rewin Pataibunlue

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Private credit has quickly expanded from a niche strategy into a core allocation for global investors. The asset class offers stable income, negotiated protection and senior ranking in a borrower's capital structure.

But as private credit becomes more widely adopted in Thailand, one message is critical: this is not a risk-free investment. Its resilience depends on discipline, structuring strength and the expertise of those who underwrite, monitor and manage each deal.

Before investors participate in this fast-growing market, they must understand the key risks that define private credit and how professionals mitigate them.

Illiquidity Risk: Illiquidity is among the most misunderstood risks in private credit. Unlike public bonds that can be traded daily, private credit loans cannot be exited easily. They are privately negotiated, non-tradeable instruments that are typically held to maturity or exited only under specific circumstances such as refinancing or sponsor buybacks.

Global private credit platforms operate closed-end funds with lives of 5-10 years. These multiyear structures are necessary to conduct deep due diligence, negotiate protections, monitor performance and execute controlled exits. They are built for stability — not liquidity.

The illiquidity premium is attractive only if investors understand the trade-off. Private credit is not suitable for those seeking quick liquidity or short-term flexibility. It rewards long-term commitment, where returns come from disciplined execution of a structure rather than market movements. Capital remains deployed until the loan matures, refinances or transitions through a planned exit.

Structuring Risk: Private credit’s true strength lies not in high coupons, but in structure. Well-designed structures protect principal even when a borrower’s business faces pressure. Poorly structured loans, by contrast, expose investors to unexpected losses.