Private credit is lending and private equity is ownership. A private credit fund lends money to a company and expects interest and repayment. A private equity fund buys a stake in a company and earns its return mainly when that stake is sold for more than it cost. Both raise money from similar institutional investors and both operate outside public markets, but they sit at different points in a company’s capital structure, and they often meet in the same deal.
What is the difference between private credit and private equity?
The core difference is the claim each investor holds: a lender is owed a contractual amount, while a shareholder owns whatever value is left after debts are paid. Most of the other differences follow from that.
| Private credit | Private equity | |
|---|---|---|
| What the investor holds | A loan or other debt instrument | Shares in the company |
| Main source of return | Interest and fees, then repayment of the loan | Gain on selling the stake, plus any dividends |
| Interest rate | Often floating [1][2] | Not applicable |
| Term | Often three to seven years [1] | No maturity date; the stake is held until it is sold |
| If the company fails | Paid ahead of shareholders; senior secured lenders have the first claim on assets [2] | Paid last; absorbs the first losses [2] |
| Upside | Limited to the agreed interest and fees | The greatest upside in the capital structure [2] |
| Control | Rights set out in the loan documents; the existing owners keep their shares | Ownership rights, which can mean control of the company |
Sources are listed at the end of this article. Rows without a number describe how debt and equity work in general.
Is private credit the same as private debt?
Yes, in most everyday use. The British Business Bank says private credit is “also known as private debt, direct lending, or private lending” [1]. Definitions do vary in research and regulation, however. Some cover non-bank lending broadly, while others count only lending by specialist funds, so market size figures from different sources are not always comparable [2].
Private equity and venture capital, by contrast, are both forms of equity finance. The Bank of England lists private equity, venture capital, growth capital and real estate funds as the most prominent providers of equity from private markets [3]. For a wider explanation of the lending side, see our guide to private credit in Europe.
Which is riskier, private credit or private equity?
Equity generally carries more risk than debt in the same company, because shareholders absorb losses first and are repaid last. Norges Bank describes risk and potential return as rising from the most senior debt down to equity [2].
That does not make private credit low risk. Unitranche, subordinated and mezzanine debt rank below senior secured lending and carry a higher risk of loss [2]. Norges Bank also notes that bank lending and bonds are typically considered lower-risk credit than private credit lending [2]. Comparing the two asset classes is therefore less useful than comparing specific positions. A junior loan to a highly indebted company may carry more risk than the label “credit” suggests. Our comparison of senior secured and unitranche loans and our article on mezzanine capital look at these differences in more detail.
How long is investors’ money tied up?
In a traditional closed-ended private credit fund, capital is typically locked up for five to eight years, according to research cited by Norges Bank [2]. Investors in these funds generally receive proceeds when investments are realised or at the end of the fund’s life [2].
Fund structures are changing. Semi-liquid funds let investors redeem part of their investment during set periods by holding a liquidity reserve. Closed-ended funds remain the majority in the euro area, but 42% of euro area private credit funds were semi-liquid in the third quarter of 2023, according to European Central Bank figures cited by Norges Bank [2]. Limited partners in private credit funds are usually long-term institutional investors, such as pension funds, insurers, sovereign wealth funds and family offices [2]. For the legal side, see our guide to European private credit fund structures.
How do private credit and private equity work together?
Private equity deals are a major source of demand for private credit. Norges Bank notes that leveraged buyouts and other private equity-backed transactions have increasingly relied on private credit for financing [2]. In a typical buyout, the private equity fund provides the equity and a lender provides the debt, so the two are often counterparties in the same transaction rather than competitors. Our article on leveraged buyout financing explains this in more detail.
The link matters in the UK too. The Bank of England estimates that private equity-backed companies account for around 15% of total UK corporate debt [3].
How big are the two markets?
Private equity is the larger of the two. In evidence submitted to Parliament after its July 2025 Financial Stability Report, the Bank of England said private equity assets under management had grown from around $2 trillion to $8 trillion globally over the previous decade, and that private credit funds managed over $2.5 trillion [3]. It put private markets as a whole at around $16 trillion. These are global estimates and depend on the definitions used [2][3].
The UK has a large role in both. The Financial Conduct Authority (FCA) describes the UK as the largest centre for private market asset management in Europe [4], and the Bank of England says UK private equity firms manage more than half of total European private equity assets [3].
How are they valued and supervised in the UK?
Neither asset class has a regular market price, so firms estimate values using judgement. The FCA makes this point in its 2025 review of private market valuation practices, which covered private equity, venture capital, private debt and infrastructure [4]. The review asked firms about governance, conflicts of interest and independence in the valuation process.
The Bank of England’s Financial Policy Committee has identified three features of private markets that could cause systemic risks: the widespread use of leverage, the opacity of valuations and reliance on rating agencies, and the correlation with other risky funding markets [3]. Private markets in their current form have also not yet been through a significant credit downturn [3].
Which suits a company looking for finance?
The main trade-off is between keeping ownership and taking on repayments. The British Business Bank notes that an established, profitable business may want to avoid the surrender of control that equity finance often brings, and that private credit offers another choice of debt finance for growth [1]. Debt has to be serviced, however, so it needs reliable cash flow. Equity has no scheduled repayments, but the existing owners give up a share of the company and of its future value.
Private credit loans are usually negotiated directly and tailored to the borrower, typically for amounts between £10 million and £250 million, according to the British Business Bank [1]. Common uses include acquisitions, expansion, working capital and refinancing [1]. A company weighing these options should take independent financial and legal advice.
Where can you meet both sides of the market?
Lenders, LPs, banks and advisers meet at Private Credit Days Europe, our conference in London on 18–19 November 2026. The event page has the agenda, ticket types and current prices.
Written by the DD Talks editorial team. Reviewed 5 November 2026. This article is general information and is not investment, legal or financial advice.
Sources
- British Business Bank, What is private credit? (read 5 November 2026; the guide uses 2018–2019 lending data, which is not quoted here)
- Norges Bank, Staff Memo 4/2026: Private credit in Norway, 12 May 2026
- Bank of England, written evidence to Parliament (PMG0021) (read 5 November 2026)
- Financial Conduct Authority, Private market valuation practices, 5 March 2025
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