Fidelity Private Credit Fund

Fidelity Private Credit Fund: A Plain English Guide for Investors

Hey there! Thinking about investing in Fidelity Private Credit Fund? This guide is for you. We'll explain their annual report simply. You can then understand their performance. This will show what it means for your money. Think of it like a chat with a friend who's good with numbers, not a stuffy financial report.

1. What does this company do and how do they make money?

   • What they do: Fidelity Private Credit Fund lends money to private companies. They aim to earn regular income. This comes from loan interest payments. They also seek long-term growth. This means their investments gain value over time. They mainly provide senior loans. These loans are first in line for repayment if a company struggles. They also invest in other types of loans. Some are riskier, like "last out" or "second lien" loans. They also provide mezzanine loans. They join "club deals" with other lenders. They might also invest in tools tied to company ownership. These include loans with options to buy shares or direct ownership stakes. They can also get or buy rights to own part of a company. The private credit market has grown a lot. This happened especially after the 2007-2009 economic downturn. Big banks became less willing to lend to medium-sized companies. This was due to new rules like the Dodd-Frank Act. This opened a door for funds like Fidelity Private Credit Fund. They stepped in to offer loans. For example, they lend to healthcare and logistics companies. This includes medical infusion services, dental products, and air shipping. They spread investments across different companies, industries, locations, and ownership groups. Most investments are in private U.S. companies. They also invest in smaller public U.S. companies, worth less than $250 million. Some investments are in non-U.S. companies. Most of their debt investments are unrated or "higher risk." This means they are riskier than highly-rated debt. They aim to invest at least 80% of their assets in Private Credit. At least 70% must meet BDC rules. The Fund is a "concentrated" investment company. It can put more money into fewer investments. This can increase risk. However, they follow diversification rules for tax purposes as an RIC. They also limit investments in other funds. This is generally no more than 10% of their total assets. Their loans usually have official lengths of five to seven years. But they expect these investments to last three to four years. Scheduled payments or required payments from extra money reduce risk over time. They have special SEC permission. This lets them invest with other Fidelity funds in the same deals. This helps them join larger opportunities. Or they can access deals from Fidelity's network. As a BDC, they often provide important management help to companies they lend to. They don't just lend money. They offer guidance on management, operations, or business goals. They monitor performance too. This active involvement helps their companies succeed.
   • How they make money: They charge interest on these loans. Many loans have variable interest rates. The rate changes with a standard rate like SOFR, plus an extra percentage. If SOFR rises, their interest earnings generally rise too. For example, one loan was SOFR + 5.50%. This resulted in a 10.83% interest rate. Besides interest, they earn other fees. These include closing, arrangement, or amendment fees. They also get fees if a borrower pays back early. Some loan investments include features that boost ownership value. These are options to buy shares. They aim for the investment's value to grow. They can also earn extra income. They do this by lending out some investments to brokers.
   • Important note for investors: This fund is relatively new. It lacks a long history of performance. Also, there is no public market for their shares. You cannot easily buy or sell shares on a stock exchange. This differs from most company stocks. This is a very important point for regular investors. Your money could be tied up for a long time. You might struggle to get it back quickly. The Fund is a BDC with no set end date. Its shares are always available. But they are not traded publicly. They offer up to $4 billion of their shares (Class S, D, and I) continuously. The purchase price depends on the Fund's asset value per share monthly. Fidelity Distributors Company LLC helps sell these shares.

2. Financial performance - revenue, profit, growth metrics

   • The company warns they cannot guarantee specific payouts. They also cannot guarantee year-over-year increases. This means your expected income from them could vary.

3. Financial health - cash, debt, liquidity

   • As mentioned, this fund is not liquid for investors. It's hard to sell your shares quickly if you need your money.
   • The fund also uses borrowed money (or "leverage") to finance investments. This is common, but it adds risk. More borrowing compared to assets means higher potential for gains and losses. They use leverage to increase profits. Shareholders approved this on September 16, 2022. This lets them borrow up to twice their own money. For every $100 of their own money, they can borrow $200. With current loans, they must maintain this limit. This allows them to make payouts or buy back shares. They can also borrow small amounts (up to 5% of assets). This is for temporary or emergency needs.
   • They plan to use credit lines and other loans. These will likely have variable interest rates tied to SOFR.