Private credit funds are typically organized as Delaware limited partnerships — legal structures that have been used for private equity and hedge funds for decades and are now standard in private debt. The fund is managed by a general partner (GP), which is typically the credit manager or its affiliate, on behalf of investors who commit capital as limited partners (LPs). The LP/GP structure provides liability protection for investors, pass-through tax treatment (income flows to investors without entity-level taxation), and a clear framework for governance and profit sharing.
The fee structure in private credit funds typically involves two components: management fees and carried interest (carry). Management fees — typically 1.00–1.75% of committed or invested capital per year — compensate the GP for running the fund, covering salaries, overhead, origination costs, and other fund expenses. Management fees are paid quarterly throughout the fund's life, regardless of performance, providing stable income to the manager.
Carried interest is the GP's share of fund profits above a preferred return threshold. Standard private credit carry is 15–20% of profits above a preferred return (or "hurdle rate") of 5–8%. The hurdle rate is the minimum return LPs must receive before the GP participates in profits. Once the hurdle is cleared, the GP may receive a "catch-up" — 100% of profits until its carried interest percentage is on track — before reverting to the standard split. European waterfall funds pay carry only after all LP capital is returned; American waterfall funds pay carry on a deal-by-deal basis.
Fund terms typically include a 3–5 year investment period (during which capital is drawn and deployed) followed by a harvest period of equal or greater length during which loans mature, are refinanced, or are sold. Investors commit capital upfront but fund capital is drawn down over time as loans close. Return of capital and distributions flow back as loans are repaid, creating a J-curve effect where early returns are low as capital is deployed.
Evergreen funds — structures with continuous fundraising, no fixed term, and ongoing NAV-based pricing — have grown significantly in private credit. Unlike closed-end drawdown funds, evergreen structures provide investors with more frequent liquidity (subject to gates and notice periods) and offer a perpetual vehicle for allocating to private credit without re-undergoing manager selection at each fund cycle.