Last month, I sat across from a successful entrepreneur who'd just sold his company. He had $2 million to invest and had spent the previous six weeks talking to private credit managers. He pulled out a folder with twelve different pitch decks, looked at me, and said: "They all sound exactly the same. They all claim 10-15% returns. They all say they have institutional-quality underwriting. How the hell do I know which one is actually good?"
I've had this conversation at least fifty times in the past year. And here's the uncomfortable truth: most private credit marketing is designed to obscure differences, not illuminate them. Everyone uses the same language, the same return projections, the same risk disclaimers. It's like trying to compare wines when every bottle's label just says "red, 13% alcohol, made from grapes."
So let's cut through it. Not with marketing language, but with a framework that actually helps you make decisions.
The Six Vehicles Competing for Your Capital
Before we compare features, let's understand the distinct vehicle types available to accredited investors. Each has fundamental structural differences that matter more than most marketing materials admit.
1. Business Development Companies (BDCs)
These are publicly traded vehicles that lend to middle-market companies. You can buy them in your brokerage account alongside stocks.
The good: Liquid (trade daily), regulated by the SEC, required to distribute 90% of income, transparent pricing.
The reality: They trade at market sentiment, not NAV. During the 2020 panic, many BDCs trading at $20/share saw values drop to $8-12, even though their underlying loans were largely performing. You get liquidity, but you inherit equity market volatility. They also tend to focus on corporate lending, not real estate debt.
2. Interval Funds
These are continuously offered funds that provide periodic redemption windows (typically quarterly) with caps on how much can be redeemed (typically 5-25% of NAV per quarter).
The good: Some liquidity without daily trading volatility, can hold truly illiquid assets, typically lower minimums ($25k-$100k).
The reality: Redemption queues can form. When more investors want out than the cap allows, you're waiting in line. In stressed markets, that line can be long. Also, fee structures are often opaque, with multiple layers of management and administrative costs.
3. Private REITs (Debt-Focused)
These are non-traded REITs that focus on real estate debt rather than equity ownership. They file with the SEC but don't trade publicly.
The good: Real estate-specific, often better liquidity than traditional private credit funds, typically lower correlation to stock markets.
The reality: Many private REITs use significant fund-level leverage (borrowing to amplify returns). When this works, it's great. When it doesn't, losses accelerate. Also, many invest in construction/development debt, which is higher risk than stabilized asset lending. Read the fine print on what they're actually lending against.
4. Direct Lending Platforms (Fintech-Enabled)
These are technology-first platforms that pool investor capital to make loans directly to borrowers. Think marketplace lending scaled up to larger loan sizes.
The good: Lower fees (no 2-and-20), transparent loan-level reporting, faster underwriting, often more flexible liquidity options.
The reality: Shorter track records, technology-dependent underwriting (what happens when the model fails?), varying quality of borrower relationships. Some are excellent. Some are algorithms chasing yield without proper risk controls.
5. Traditional Private Credit Funds
These are the institutional players—closed-end funds with 5-7 year lock-ups, high minimums ($250k-$5M+), traditional fee structures (2% management + 20% carry).
The good: Typically the most sophisticated managers, longest track records, deepest borrower relationships, institutional-quality due diligence.
The reality: Completely illiquid until fund maturity, high minimums exclude most investors, fee drag is significant (2-and-20 can consume 3-4% annually), little transparency between quarterly reports.
6. Real Estate Debt Funds (Retail-Accessible)
These are private funds specifically focused on real estate lending, structured for accredited (but not ultra-high-net-worth) investors.
The good: Real asset backing, typically lower minimums than traditional funds ($50k-$100k), focused strategy, often quarterly liquidity options.
The reality: Quality varies enormously. Some are run by experienced institutional managers bringing strategies to retail. Others are small operators who couldn't raise institutional capital. Due diligence on the manager is critical.
The Questions You're Asking vs. The Questions You Should Ask
Most investors start with five questions:
- What are the returns?
- What's the minimum investment?
- Can I get my money out?
- What's your track record?
- What are the fees?
These aren't wrong questions. They're just incomplete. Here are five additional questions that reveal more:
Better Question #1: "Show me three loans that didn't perform as expected. What happened, and what did you do?"
What this reveals: How they handle stress, whether they're transparent about problems, their workout capabilities, whether they blame borrowers or take responsibility.
Every manager has loans that underperform. The sophisticated ones can walk you through specific examples, what early warning signs they saw (or missed), and how they resolved it. The ones to avoid will claim they've never had a problem.
Better Question #2: "What percentage of your current portfolio is in some form of modification or forbearance?"
What this reveals: Current stress in the portfolio, transparency, whether their public returns reflect reality.
With loan modifications up from 8% to 12% industry-wide, any manager claiming zero modifications is either sub scale, lying or not stressed-testing properly. The honest ones will tell you the percentage and explain why they're comfortable with it.
Better Question #3: "If I invest $100k today, when exactly will I see my first distribution, and how is that timing determined?"
What this reveals: Cash flow mechanics, whether they're paying distributions from new investor capital (a red flag), the lag between borrower payments and investor distributions.
If the answer is vague ("quarterly distributions subject to available cash"), dig deeper. If they say "monthly, starting next month" and they haven't fully deployed capital yet, that's a warning sign.
Better Question #4: "What percentage of your portfolio is in floating-rate debt, and how do you model distribution changes if rates drop 200 basis points?"
What this reveals: Rate sensitivity, whether they've thought about the rate cut scenario, honesty about future returns.
Most private credit marketing shows historical returns in a rising-rate environment. Those returns will compress as rates fall. Managers who've modeled this and share realistic forward projections demonstrate sophistication.
Better Question #5: "What's your average loan-to-value, debt service coverage ratio, and how do you define 'stabilized' assets?"
What this reveals: Actual risk management, whether "conservative underwriting" is marketing or reality, comparability across managers.
This is where you separate the disciplined from the aggressive. Someone lending at 85% LTV against < 1.0x coverage on properties under construction is taking fundamentally different risk than someone lending at 75% LTV on stabilized, cash-flowing properties.
The Comparison Matrix That Actually Matters
Here is a framework I use when evaluating private credit opportunities. Rate each vehicle on these four dimensions:
Dimension 1: Liquidity vs. Returns
There's an unavoidable tradeoff. Higher liquidity almost always means lower returns for the same amount of risk, because the manager must maintain cash reserves and invest in more liquid (lower-yielding) assets.
- Daily liquidity (BDCs): Accept 3-5% lower returns for instant access
- Quarterly liquidity (interval funds, some platforms): Accept 1-3% lower returns for periodic access
- Annual liquidity windows: Modest return give-up
- Locked until maturity: Maximum returns, zero flexibility
Where should you be? Depends entirely on your personal liquidity needs. If you might need this capital in 12 months, you don't belong in anything without quarterly liquidity, regardless of returns.
Dimension 2: Leverage (Where Is It and How Much?)
Leverage amplifies everything—good and bad. But where leverage sits matters enormously.
- Fund-level leverage: The fund borrows money to make more loans. When this works, your returns are amplified. When the fund faces redemptions or loan losses, the leverage works against you. Many private REITs use 2:1 or 3:1 leverage.
- Asset-level leverage: Each property has its own senior debt, and you're lending in a junior position. You're not personally leveraged, but you're behind another lender. Less risky than fund-level leverage but still important to understand.
- No leverage: You're in senior or co-senior position, no fund borrowing. Lower returns, but cleaner structure and downside protection.
Dimension 3: Transparency and Reporting
This ranges from "complete opacity" to "see every loan."
At the low end: Quarterly NAV statements with little detail.
At the high end: Monthly reports showing every loan, every property, current occupancy rates, cash flow coverage, LTV ratios, and which loans are in forbearance.
You're an investor, not a customer. You should see what you own.
Dimension 4: Tax Implications
This gets overlooked until tax time, then suddenly matters a lot.
- K-1 complexity: Most private credit funds issue K-1s. These can be complex, arrive late (March/April), and if you're in multiple funds, you're juggling multiple K-1s.
- UBTI for IRAs: Unrelated Business Taxable Income can create tax liability inside your IRA if the fund uses leverage. Some vehicles are structured to avoid this; others aren't. If you're investing IRA money, this is critical.
- Timing of distributions: Some vehicles pay monthly, others quarterly, others at fund maturity. This affects your tax planning and cash flow needs.
Real-World Scenario Analysis
Let's make this concrete with three investor profiles.
Scenario 1: The $100K Investor
Profile: Accredited investor, $100k to allocate, needs some liquidity flexibility, concerned about fees.
Best fit: Direct lending platform or interval fund with quarterly redemptions.
Why: Minimums work, fee structures typically more transparent, liquidity exists if needed. Avoid: High-minimum institutional funds (you don't qualify), BDCs (too much market volatility for a concentrated position), and anything with long >5 year lockups.
Where Nectar fits: The company offers quarterly liquidity options, $100k minimums, and structures designed to avoid UBTI for IRA investors.
Scenario 2: The $500K Investor
Profile: High-net-worth, $500k to allocate, comfortable with longer lockups if returns justify it, sophisticated understanding of risks.
Best fit: Mix of vehicles—perhaps $250k in institutional fund (best managers, higher returns, locked up), $250k in platform with quarterly liquidity (flexibility, transparency).
Why: Enough capital to diversify across vehicle types, can afford to lock up half for better returns, and maintains some flexibility with the other half.
Where Nectar fits: Could be the $250k "liquid" portion of the strategy. Gets institutional-quality underwriting (experienced operators, stabilized assets, conservative LTVs) with a quarterly liquidity option. Pair it with a traditional private credit fund for the illiquid portion to maximize total portfolio returns.
Scenario 3: The IRA Investor
Profile: $200k in self-directed IRA, concerned about UBTI, needs some growth but can't risk principal heavily.
Best fit: Platforms or funds specifically structured to avoid UBTI, conservative underwriting.
Why: UBTI creates tax liability inside your IRA—defeats the purpose of tax-deferred growth. Many BDCs and leveraged funds create UBTI problems.
Where Nectar fits: Structured to avoid UBTI (no fund-level leverage), appropriate for IRA investing, conservative LTV ratios and cash flow coverage align with capital preservation goals. It offers a clean tax structure that matters more than an extra 1-2% that comes with UBTI headaches.
Red Flags and Green Flags
After evaluating dozens of these vehicles, certain patterns emerge.
🚩 Red Flags That Should Stop You Cold:
- Guaranteed returns or "no investor has ever lost money" — Private credit involves risk. Period. If they're guaranteeing anything, someone else is bearing risk you're not seeing.
- Can't explain the redemption queue process clearly — If you can't get a straight answer on how redemptions work when demand exceeds the cap, assume the worst-case scenario.
- Opaque fee structures with vague "other expenses" — Total costs should be clear and disclosed annually. If they can't give you a number, it's probably high.
- No discussion of loans under stress — With modifications up to 12% industry-wide, any manager claiming zero problems is either dishonest or about to discover problems.
- Marketing emphasizes lifestyle over underwriting — Fancy offices, celebrity partnerships, glossy materials. Great branding doesn't equal great underwriting.
✅ Green Flags That Indicate Professionalism:
- Regular updates with property-specific metrics — You can see what you own, track performance, understand concentrations.
- Clear covenant structures they can explain — They can walk you through what triggers remediation, what their rights are, how they enforce.
- Realistic return expectations with rate-cut scenarios — They've modeled what happens as rates normalize, and they're honest about compression.
- Management has significant personal capital invested — Skin in the game aligns interests. Ask what percentage of manager net worth is in the fund.
Where Nectar Fits in This Landscape (The Honest Positioning)
Let me be direct about where Nectar does and doesn't make sense, because the wrong fit doesn't serve anyone.
Where Nectar is NOT the right choice:
- If you need daily liquidity (go with a BDC instead)
- If you want exposure to corporate lending or diverse credit strategies (Nectar is exclusively commercial real estate debt)
- If you need to invest less than $25k (some interval funds go lower)
Where Nectar is specifically designed to fit:
- You want institutional-quality underwriting (experienced operators, stabilized assets, conservative LTVs) without institutional minimums
- You value transparency (loan-level reporting, property-specific metrics) over opacity
- You want quarterly liquidity options without daily market volatility
- You're investing IRA funds and need to avoid UBTI
- You prefer the "boring" safety of stabilized, cash-flowing multifamily over the excitement of development debt or corporate loans
The specific positioning:
Nectar’s Fund 2 sits in what I'd call the "disciplined middle"— we offer a good return profile of 12-14% but it’s not the most liquid (quarterly vs. daily) & not the lowest minimum (interval funds can be lower).
But here's what you get for those trade-offs:
- Average loan-to-value of 56-65% combined (conservative)
- Only experienced operators with $25M+ in stabilized multifamily (proven track record)
- Technology-enabled underwriting (7-10 day processing) that makes small-balance loans economical
- Geographic diversification across dozens of properties without requiring $5M+ investment
It's institutional risk management at accessible minimums. Not sexy. Not the highest yield on any marketing deck. But structured for what matters when markets get difficult.
What You Need to Decide Before Part 3
You now have a framework for evaluating options. You understand the vehicle types, the questions that actually matter, and where different structures make sense.
But here's what we haven't addressed yet—and it's arguably more important than everything above:
How does all of this change over the next 24 months?
Because the market isn't static, rate cuts are coming. The economy is weakening. Regulatory scrutiny is increasing. Borrower stress is rising. Yield compression is inevitable. And not every vehicle structure will adapt equally well.
Some of these options will look brilliant in hindsight. Others will reveal themselves as yield-chasing dressed up as sophisticated underwriting.
In Part 3, I'm going to walk through the specific forces reshaping private credit right now, what sophisticated investors are doing to position ahead of them, and most importantly—the questions you should be asking your current managers (or prospective ones) about how they're preparing for what's coming.
Because choosing the right vehicle structure matters. But choosing one managed by people who understand where we're headed matters more.
Coming next: "The Private Credit Reckoning: What the Next 24 Months Will Reveal (And How to Position Ahead of It)"
Derrick Barker is the CEO and Co-Founder of Nectar, a fintech platform providing flexible private credit solutions to commercial real estate operators. A Harvard graduate and former Goldman Sachs bond trader, Barker has personally acquired, renovated, and managed over $450 million in real estate assets, giving him unique insight into both sides of the lending equation. Under his leadership, Nectar has deployed over $50 million across 150+ loans while maintaining a perfect distribution track record with 15% average annual portfolio wide returns for investors.
