Beyond private credit: A broader map of income-generating investments
If you have been tracking income investments in recent years, private credit has likely stood out. Strong yields, institutional participation, and growing allocations from family offices and high net worth investors have made it a prominent feature in many alternative portfolios. At the same time, recent developments, including rising default rates in certain segments and increased scrutiny on deal structures, have prompted closer examination of the asset class and exploration into other income-focused solutions. A broader range of income generating instruments exists, each with distinct drivers of return, risk considerations, and liquidity characteristics.
Here's a practical look at five of them.
1. Commercial papers
Commercial Papers (CPs) are short-term debt instruments issued by corporations to fund working capital and near-term obligations, typically with a tenor of up to 12 months. Issued on a senior, unsecured basis, they represent a direct obligation of the issuer and tend to sit at the upper portion of the priority stack in repayment terms.
CPs offer a relatively straightforward proposition: defined maturity, predictable yield, and exposure to established corporate names. Because they're short-dated and have a locked-in interest rate, they are generally less sensitive to interest rate movements due to their short tenor, offering a practical advantage in uncertain rate environments.
The key consideration is issuer quality. As CPs are unsecured, credit analysis matters. Investors are extending trust to the issuer's ability to refinance or repay, so understanding the issuing entity's financial health and liquidity position is essential.
2. Fixed coupon notes
Fixed Coupon Notes (FCNs) are structured products that provide periodic coupon payments over a defined term, subject to specified conditions linked to an underlying asset, such as a stock, basket of equities, or an index.
Coupons are typically paid if the underlying asset remains above a pre-defined level. If this condition is not met, the final payout may differ from the initial principal, depending on the product structure.
As a result, FCNs combine elements of income generation with exposure to market performance. The coupon payments reflect this structure, where income is conditional on the behaviour of the underlying asset rather than guaranteed in all scenarios. Key considerations include the choice of underlying asset, the barrier level, and the observation structure. Investors should also assess how the product behaves under different market scenarios, particularly in the event of a significant drawdown in the underlying, which can affect the final payout. Depending on the structure, investors may be exposed to partial or full capital loss if the underlying asset performs poorly.
3. Private credit
Private credit refers to non-bank lending to companies, typically through direct loans, and spans a wide range of strategies across the capital structure.
These may include senior secured lending, unitranche structures, and subordinated debt, each with different risk return characteristics. According to Fitch Ratings, the U.S. private credit default rate reached 5.8% in January 2026 on a trailing twelve month basis, with smaller issuers accounting for a larger share of defaults.¹ In contrast, Proskauer’s Private Credit Default Index reported a 2.46% default rate for senior secured and unitranche loans in Q4 2025.²
These differences highlight that private credit is not a uniform category. Outcomes depend on factors such as borrower quality, deal structure, collateral, and manager approach.
Income from private credit is primarily generated through interest payments on loans. As many private credit instruments are structured with floating rates, periods of elevated interest rates tend to increase income potential, all else being equal. In some structures, fees and payment‑in‑kind (PIK) features may supplement returns, though the mix between cash and non‑cash income varies by deal. The income profile is also influenced by position in the capital structure: senior secured loans typically offer more predictable cash flows, while subordinated or mezzanine debt may provide higher yields in exchange for greater risk exposure.
4. Private real estate income strategies
Private real estate income strategies involve investments in non-listed property assets, typically accessed through institutional grade funds or structures.
Unlike publicly listed REITs, which are traded on exchanges, private real estate investments are valued based on underlying asset performance rather than daily market sentiment.
Income is primarily generated through rental distributions from properties such as logistics facilities, residential units, or commercial buildings, while capital appreciation may contribute to longer term returns.
Research tracking U.S. private real estate over the past 20 years suggests that income from the asset class has historically compared favorably to traditional equities and bonds over the same period.³ Yet, factors such as leverage, sector exposure, and liquidity constraints remain relevant considerations before investing in the asset class.
5. Systematic income strategies
Systematic income strategies use rules-based approaches to generate income, often through derivatives or options-based frameworks.
One example is a covered call strategy, where an investor holds an underlying asset and sells call options against it to collect premiums. This approach generates income while limiting some potential upside if the asset is appreciated significantly.
These strategies may also incorporate valuation or market signals to guide exposure. For instance, the Shiller CAPE ratio compares current market prices to inflation adjusted earnings over a 10-year period, providing a longer-term perspective on valuation. ⁴ Research has shown that such measures can offer insight into expected returns over multiyear horizons. ⁵
Rather than relying solely on manager discretion, systematic approaches aim to apply consistent rules in balancing income generation with market exposure. Key considerations include the trade-off between income generation and participation in upside, particularly in trending markets where capped strategies may underperform. Investors should also evaluate how the underlying rules are constructed and stress-tested, as systematic approaches are only as robust as the signals and parameters they rely on. Costs, including transaction costs from frequent rebalancing and options pricing in different volatility environments, can also affect net returns.
The bigger picture
Income investing has never really been a single-instrument story. What's changed is that more of these instruments are now accessible to accredited investors who want to build a portfolio with genuine breadth, not just concentrated exposure to whichever asset class is currently in fashion.
The investors best positioned to weather different market conditions tend to be the ones who understand each instrument on its own terms: what drives the yield, where the risk sits, and how each piece interacts with the rest of their portfolio.
References:
1Fitch Ratings / Funds Society. "U.S. Private Credit Default Rate Continues to Climb." March 2026. https://www.fundssociety.com/en/news/alternatives/u-s-private-credit-default-rate-continues-to-climb/
2Proskauer Rose LLP. "Private Credit Default Index: Q4 2025." January 2026. https://www.proskauer.com/report/proskauers-private-credit-default-index-reveals-rate-of-246-for-q4-2025
3Invesco / Institutional Investor. "The Historical Benefits of US Private Real Estate." November 2025. https://www.institutionalinvestor.com/article/sponsored-content/historical-benefits-us-private-real-estate
4Shiller, Robert J. "U.S. Stock Markets 1871-Present and CAPE Ratio." Yale University. http://www.econ.yale.edu/~shiller/data.htm
5Morningstar. "P-CAPE: A Better Way for Investors to Estimate Future Returns." July 2024. https://www.morningstar.com/markets/improving-cape-10
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