Underwriting questions ranked by information value and failure modes.
Alignment, incentive, and track-record checks before capital commits
Headroom and amendment risk mapped across the capital structure.
Private credit has grown faster than standardized disclosure. Investors evaluating direct lending and specialty finance need due diligence standards that go beyond marketing materials and manager track records.
Overview
Competition for yield has compressed spreads and encouraged looser documentation in some segments. Investors who apply institutional due diligence standards can identify managers with repeatable underwriting, transparent reporting, and alignment through skin in the game.
Due diligence checklist
Key areas include loan documentation quality, recovery assumptions in stress scenarios, manager concentration in single sectors, and fee structures that reward volume over performance. Requesting cohort-level default data and comparing loss rates to public credit benchmarks surfaces managers who have earned their fees through selection, not leverage.
Ongoing monitoring
Due diligence does not end at commitment. Quarterly reviews of pipeline quality, watchlist trends, and covenant compliance help investors detect deterioration before losses materialize. Maintaining a written scorecard makes it easier to compare managers and redeploy capital when standards slip.
Questions about private credit? Contact our advisory team.
