In private credit, the vehicle shapes the client experience as much as the loans inside it because it determines leverage limits, liquidity terms, valuation frequency, and tax treatment.

The fund types

Vehicle	Liquidity	Pricing	Leverage limit	Tax form
Drawdown private credit fund	None until loans repay	Periodic valuation	Set by fund documents	K-1
Traded BDC	Daily on an exchange	Market price, can differ from NAV	150% asset coverage if elected	1099
Non-traded / perpetual (evergreen) BDC	Periodic repurchase offers, board discretion	NAV	150% asset coverage if elected	1099
Private BDC	Limited, per fund documents	NAV	150% asset coverage if elected	1099
Interval fund	Mandatory periodic repurchase under Rule 23c-3	NAV	Investment Company Act limits	1099
Tender offer fund	Discretionary repurchase offers	NAV	Investment Company Act limits	1099

Three of these structures warrant more explanation because they account for the bulk of wealth-channel private credit.

Business Development Companies

A BDC is a closed-end investment company that elects to be regulated under Sections 54 through 65 of the Investment Company Act of 1940, a framework Congress created to channel capital to small and mid-sized US companies.¹¹ Four rules govern how a BDC operates:

The 70% qualifying asset test. At least 70% of assets must be invested in eligible US private or small public companies.
The 90% distribution requirement. To maintain regulated investment company (RIC) tax status and avoid entity-level tax, the BDC must distribute at least 90% of its investment company taxable income annually. This is why BDCs are income vehicles by design and issue Form 1099s rather than K-1s.
Asset coverage limits. The default requirement is 200% coverage, meaning debt is no greater than equity, roughly 1:1. The Small Business Credit Availability Act of 2018 allows a BDC to operate at 150% coverage, roughly 2:1, with board approval effective after one year or shareholder approval effective the next day, plus disclosure.¹¹
Affiliate transaction restrictions. Section 57 limits transactions with affiliates, and co-investment among affiliated funds generally requires SEC exemptive relief.

Definition: asset coverage ratio

Total assets minus non-debt liabilities, divided by outstanding debt. At the 150% minimum, a BDC with $100 of equity can carry up to roughly $200 of borrowings. Leverage amplifies both income and losses, which is why a fund's leverage policy belongs in due diligence (Chapter 10) rather than in the fine print.

The category has grown quickly. KBRA reported that BDC principal value under management rose 126% over three years to $550 billion as of the third quarter of 2025.¹²

Interval funds and tender offer funds

Both are registered closed-end funds, and the difference is between a requirement and an intention. An interval fund must make periodic repurchase offers under SEC Rule 23c-3, typically 5% of shares per quarter. The offer is mandatory, and the size is capped. A tender offer fund may repurchase shares at net asset value, but the offer is made at the board's discretion.

Drawdown private credit funds

The institutional structure: investors commit capital, the manager calls it over an investment period, and the fund winds down as loans are repaid. No periodic liquidity, higher minimums, usually a K-1, and generally reserved for accredited investors or qualified purchasers.

How access works

Knowing the vehicle types is half the picture. The other half is what happens operationally between the decision to allocate and the position being funded and monitored.

Step 1: Confirm eligibility and custody

Verify the client's eligibility tier (Chapter 5), confirm the account can hold the asset, and review the custodian's policy. Not every custodian supports every alternative structure, and retirement accounts have additional custodial requirements. Establishing this first prevents the most common operational dead end.

Step 2: Choose the access route

Custodial or platform access. Many advisors subscribe through their custodian's alternative-investment platform. Subscription processing, position reporting, and fee billing are integrated, and minimums are often negotiated.
Direct subscription with the sponsor. Standard for evergreen BDCs and private placements, offering closer access to the sponsor's reporting.
Feeder vehicles. Aggregate smaller commitments to reach a manager whose direct minimum is out of reach, at the cost of an additional fee layer that should be explicitly evaluated.

Step 3: Subscription and funding

Every private fund requires subscription documents, an investor eligibility questionnaire, and anti-money-laundering verification. Evergreen vehicles with quarterly closes set document deadlines ahead of each close, and the subscription is priced at that period's net asset value. Drawdown funds work differently: signing creates a commitment, and cash moves later through capital calls the advisor must track.

Step 4: Ongoing operations

Reconcile positions and valuations with the custodian. Process distribution elections (cash or reinvestment), which, in a high-distribution asset class, carry real consequences. Collect 1099s or K-1s. Monitor the manager against the metrics in Chapter 10. Firms that treat this as a defined workflow with named owners scale private credit programs successfully; firms that treat it as correspondence do not.

Step 5: Liquidity requests

Exits are scheduled events. In evergreen vehicles, the advisor submits repurchase requests within the fund's window and manages the possibility of proration. In drawdown funds, capital returns as loans are repaid, and an early exit means a secondary sale, typically at a discount. The mechanics should be explained to the client before the subscription is signed, not when liquidity is needed.

An illustrative platform example

LAGO EVERGREEN CREDIT BDC

Income-oriented private credit

First-lien, senior-secured direct lending
Lower-middle-market borrowers
Quarterly closes
Intends annual liquidity beginning in 2027

Beginning in 2027, the BDC intends to commence a share repurchase program in which it intends to repurchase up to 10% of outstanding Shares (by number of Shares). The repurchase program is subject to approval of the BDC’s Board of Trustees and availability of liquidity in the BDC. Accordingly, there is no guarantee that liquidity may be available.

WHAT TO TAKE FROM THE EXAMPLE

The design lesson, not the fund

The wrapper (evergreen BDC) sets liquidity and tax treatment
The strategy (first-lien, lower middle market) sets credit risk
The two choices are independent of each other
Evaluate both separately for any fund

Presented for educational purposes only. This is not an offer or a recommendation.

Notice of Conflict: Mr. Mark Buffington, Mr. Bill Harris, and BIP Capital, LLC are minority equity owners in LAGO Asset Management, LLC and accordingly are entitled to profits interests in LAGO. BIP Capital is also the fund administrator and receives compensation from LAGO Asset Management. Accordingly, this relationship creates a conflict of interest for BIP Capital, BIP Wealth, BIP Alliance and its personnel due to the minority ownership in LAGO. BIP Capital may be more inclined to speak favorably of, and recommend to prospective investors, LAGO Evergreen Credit given its profits interest in LAGO Asset Management.

The vehicle determines how leveraged the fund can be, how liquid it is, how often it is valued, and how it is taxed.

Key takeaway

Read the repurchase policy before the strategy description. The strategy explains what the fund aims to earn. The repurchase policy explains what your client can and cannot do when they want their money back.

Sources

Investment Company Act of 1940, Sections 54 through 65 (business development companies), as amended by the Small Business Credit Availability Act of 2018; Internal Revenue Code Subchapter M. https://www.sec.gov/investment/laws-and-rules
KBRA, "Private Credit: 2026 Outlook." https://www.kbra.com/private-credit

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