Private creditPassive income
How does Ocean Ridge evaluate a private credit fund?
We set the headline yield aside, because they all quote about the same number.
What questions should I ask a private credit sponsor before I wire?
Ten, across two calls. Five a sponsor should answer without looking anything up, because anyone running the book knows them cold. Five that need documents and a follow-up. How somebody handles the first five tells you more than the numbers in the second five do.
For educational purposes only. Nothing on this page is investment, legal or tax advice, and nothing here is an offer to buy or sell any security. Ocean Ridge Capital Partners, LLC is not a registered investment adviser, broker-dealer, law firm or accounting firm.
What this question is really asking
You want a checklist you can hold in a meeting without looking like you are reading from one. Underneath that is something more useful: you are trying to work out whether this person actually runs the book or sells it. Those two people answer the same questions differently, and the difference shows up in the first five minutes if you know what to listen for.
Five for the first call, no preparation allowed
Anyone running a credit book answers these from memory. If they cannot, you have learned the most important thing on the call.
- What is the net return to investors, after losses and fees? Not the gross yield, not the coupon. The number that lands.
- What is the collateral coverage on a typical loan? How much the asset is worth against how much is lent.
- How long is the paper? Average duration, and what happens when it rolls.
- How many years of performance data do you have, and through what conditions? A record that has not seen a downturn is a shorter record than its length suggests.
- How do you get paid? Every line, including who keeps the origination fee.
Listen for precision rather than enthusiasm. "Low seventies loan to value, high sixties on the newer vintage" is an answer. "We are very conservative on leverage" is not, and it is the more common one.
Five for the second call, with documents
These need the offering documents and a day of preparation. Ask them in writing.
- What leverage does the fund itself use, and at what cost? Borrowing sits in front of your return.
- What are net losses after recoveries, by vintage? Not the default rate. What did not come back.
- How many active loans, and how large is the biggest? Concentration is the risk that turns a bad loan into a bad year.
- What is the recovery process, and the realised recovery rate? Who runs a workout, how long it took last time, how many cents arrived.
- What are the redemption terms, including the cap and the gate? Notice, window, cap, and who decides to suspend it.
What you are entitled to receive in a private offering is framed by Rule 502(b), and statements made to prospective investors in a pooled vehicle fall under 17 CFR 275.206(4)-8. These are fair questions and a written answer is a reasonable thing to expect.
What the answers to the first five are really telling you
Three patterns, and none of them is about the numbers.
- Precision under pressure. Someone who runs the book quotes ranges and names exceptions. Someone who sells it quotes adjectives.
- Volunteered bad news. A manager who brings up a loan that went wrong before you ask has a process. One who has never had a problem has a short history or a flattering definition.
- Comfort with the fee question. Hesitation on question five is the single most reliable signal on the call, because it is the one question where the honest answer is always available and sometimes unflattering.
The Fed’s Financial Stability Report for May 2026 is useful background for question ten, since it records what happens to redemption windows in a stressed quarter. Ask the question while the quarter is calm.
One closing note on how to use the list. Do not send it in advance. A prepared answer to question five is a drafted answer, and the whole value of the first call is hearing the version that has not been through anybody’s compliance review.
How we think about it
Our view is that diligence on a credit manager is mostly a character assessment with numbers attached. The figures can be checked later and often are. What cannot be recovered later is the impression of how somebody behaves when asked something inconvenient, and that is available for free on the first call.
We run these in the order above deliberately. The unpreparable five come first because the point is to hear the unrehearsed version. Sending the full list in advance gets you a better-researched answer and a worse read on the person.
We also treat question five as the one that sorts the field. Everything else has a defensible range. Fees have a single correct answer that the manager already knows, so reluctance there is never about the difficulty of the question.
Where this does not apply
None of this works on a feeder or a platform, where the person on the call is not the person running the book and cannot answer five of the ten. There the list has to be put to the underlying manager, or the platform has to pass it on. It also reads differently for a very new fund, where several answers do not exist yet, and the honest response is to say so rather than to produce a number from a model.
Related questions
What if a sponsor will not answer in writing?
That is an answer. A manager who will say something on a call and not in an email has told you how much weight the sentence carries.
Is it rude to ask how someone gets paid?
No, and the reaction to it is informative. Every manager knows their own fee schedule, so discomfort is about the content rather than the question.
How much of this applies to a real estate equity sponsor?
Roughly half. Fees, concentration and track record carry over. Collateral coverage, recovery rates and redemption terms are credit questions and do not.
What if the answers are all good?
Then you have a manager worth diligencing properly, which is where documents, references and other investors come in. Ten questions open the file rather than close it.
Should I ask all ten on one call?
No. The first five are for the first call precisely because they are unprepared, and the second five need documents. Splitting them is part of the test rather than an inconvenience.
If you are weighing a deal this year, book an investor strategy call.
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