PGIM Private Credit Fund

PGIM Private Credit Fund: 2025 Annual Review for Investors

This summary offers investors a clear and accessible overview of PGIM Private Credit Fund's operations and financial performance for the year ended December 31, 2025. Drawing directly from its latest SEC 10-K filing, it explains the fund's strategy, financial health, and key risks in plain language.

1. Business Overview

PGIM Private Credit Fund, a Delaware statutory trust formed on March 21, 2022, lends to private, middle-market companies—businesses too large for small business loans but not yet major corporations. It has operated as a "Business Development Company" (BDC) since May 5, 2023, and aims to qualify as a "Regulated Investment Company" (RIC) for tax purposes, meaning it generally distributes most of its income to shareholders. Pruco Life Insurance Company, a subsidiary of Prudential Financial, Inc., majority-owns the fund, providing strong institutional backing.

The fund primarily invests in "floating rate leveraged (below investment grade) debt," specifically "senior secured, first lien" loans. This means its loans are typically backed by collateral and are first in line for repayment if a company faces financial distress. The interest rates on these loans adjust with market benchmarks like SOFR, EURIBOR, or SONIA, impacting the fund's earnings as interest rates change.

PGIM Private Credit Fund diversifies its portfolio across industries such as healthcare, consumer goods, software, construction, food and beverage, and technology hardware. Examples of companies it has lent to include Anne Lewis Strategies LLC (professional services), CF Newco, Inc. (software), and Ivy Technology Parent Intermediate III Holdings, LLC (technology hardware). Notably, the fund holds a significant equity stake in Entertainment Earth, LLC (trading and distribution), a "controlled" or "affiliated" investment.

The fund also invests internationally, allocating up to 30% of its total assets to countries such as the UK, Australia, Netherlands, Germany, France, Canada, and Latin America. While most debt is USD-denominated, some is in other currencies, so the fund uses "foreign exchange contracts" to manage currency risk. For example, as of December 31, 2024 (reflecting the prior year's portfolio), the fund held loans to Nayak Aircraft Services Holdings GmbH in Germany (aerospace) and Airedale Newco Limited in the United Kingdom (chemicals), illustrating its global reach.

2. Financial Performance

For the year ended December 31, 2025, PGIM Private Credit Fund generated Total Investment Income of approximately $38.5 million. After deducting expenses, the fund reported Net Investment Income of approximately $22.3 million.

The fund's investment portfolio showed positive momentum. The fair value of its total investments reached $361.554 million as of December 31, 2025, compared to an original cost of $357.097 million. This generated an unrealized gain of approximately $4.457 million on its investment portfolio, meaning the paper value of its holdings increased during the year.

The fund's equity investment in Entertainment Earth, LLC, proved a specific success story, generating an unrealized gain of $460,000 this year and bringing its fair value to $827,000. The fund also earned $65,000 in interest from its debt investment in Entertainment Earth.

However, managing international investments brought challenges. The fund's foreign exchange contracts, used to hedge against currency fluctuations, incurred an unrealized depreciation (a paper loss) of approximately $1.663 million as of December 31, 2025, highlighting the complexities of international currency management.

Overall, the fund's Net Assets increased by approximately $26.6 million for the year, reflecting its Net Investment Income, realized gains, and the net impact of unrealized gains and losses. The total Net Asset Value (NAV) as of December 31, 2025, was approximately $204.67 million.

3. Risk Factors

Investors face several material risks with PGIM Private Credit Fund:

• Limited Operating History: The fund is relatively new (formed March 2022, BDC status May 2023), so it lacks a long track record for performance evaluation.
• Board Discretion: The Board of Trustees can alter operating policies and strategies without shareholder approval.
• Interest Rate Risk: Because the fund primarily invests in floating-rate debt, changes in benchmark rates (SOFR, EURIBOR, SONIA) directly impact its earnings and loan values.
• Conflicts of Interest: Potential conflicts of interest exist between the fund, its manager (PGIM Investments), and affiliates (such as Prudential Financial). The manager's interests might not always align with shareholders, and decisions regarding affiliated companies (like Entertainment Earth) could be influenced.
• Federal Income Tax Risks: Changes in tax laws or their application could negatively affect the fund's returns.
• Currency Risk: International investments expose the fund to exchange rate fluctuations, which can impact the USD value of foreign assets. This year's $1.663 million unrealized depreciation on foreign exchange contracts highlights this ongoing challenge.
• Valuation Risk (Level 3 Inputs): The fund values a significant portion of its private loans using "Level 3 inputs," which means their fair value relies on unobservable inputs and management's assumptions. This introduces subjectivity and potential for the stated value to differ from actual market prices.
• No Guaranteed Distributions: The fund does not guarantee regular or consistent distributions, and payouts could decrease.
• Illiquid Investments: Investments in private companies are inherently illiquid, making them difficult to sell quickly. This could limit the fund's ability to exit positions when needed.
• Middle Market & Leveraged Company Risks: Lending to middle-market companies, particularly those with significant debt, is riskier. These companies are often more sensitive to economic downturns, and the fund typically lacks operational control.
• Non-Diversified Status: The fund's "non-diversified" classification allows it to invest a substantial portion of its assets in a single issuer. For example, as of December 31, 2024, The Wells Companies, Inc. represented 9.72% of net assets, and Kandelium Group GmbH loans collectively exceeded 5%, concentrating risk.
• Leverage Risk: The fund's significant use of borrowed money (176.65% of net assets) amplifies both potential gains and losses. It also increases interest expense and could limit cash available for distributions.
• Unfunded Loan Commitments Risk: The $33.2 million in unfunded commitments creates future funding obligations. These could strain liquidity or necessitate additional borrowing.
• Regulatory Investment Limits: The fund must maintain at least 70% of its assets in "qualifying assets." While currently compliant (16.68% non-qualifying), this limit could restrict investment choices or force asset sales if the fund approaches it.
• Geopolitical and Macroeconomic Risks: Global events (e.g., conflicts, health crises) and economic conditions (e.g., inflation, supply chain issues) can negatively impact the fund and its portfolio companies.
• Cybersecurity Risk: Like all financial entities, the fund faces risks from cyberattacks. These could lead to data breaches or operational disruptions.

4. Financial Health

The fund actively uses leverage (borrowed money) to enhance potential returns. As of December 31, 2025, its total investments of $361.554 million represented 176.65% of its net assets, reflecting significant reliance on debt financing. Total debt outstanding was approximately $195 million. While leverage can boost gains, it also magnifies potential losses and increases sensitivity to interest rate changes.

To manage short-term liquidity, the fund utilizes "reverse repurchase agreements." As of December 31, 2025, it held $7.67 million in these agreements with Macquarie Bank Limited, at an interest rate of 6.62%, maturing in March 2026. The fund also held approximately $15 million in cash and cash equivalents.

A key financial obligation is the fund's unfunded loan commitments, totaling a significant $33.2 million as of December 31, 2025. These are promises to lend additional money to companies in the future, which the fund must be prepared to fund, potentially impacting cash flow. The fair value of these commitments was slightly negative at $(0.25) million.

The fund must also comply with regulatory limits on "non-qualifying assets," which cannot exceed 30% of total assets. As of December 31, 2025, 16.68% of its total assets were in non-qualifying assets, well within the limit but a metric to monitor.

Crucially, no established public market exists for the fund's shares, meaning investors cannot easily buy or sell them on a stock exchange. While the fund has a discretionary share repurchase program, the Board of Trustees can suspend or modify it at any time. The timing of repurchases may not always align with shareholder needs. This limited liquidity is a significant consideration for potential investors.

5. Future Outlook

Looking ahead, the fund anticipates navigating a dynamic global economic environment. Persistent inflation, evolving supply chain dynamics, and potential shifts in interest rate policies will likely influence both the fund's investment income and the performance of its portfolio companies. The private credit market will likely remain competitive, requiring the fund to leverage its sourcing capabilities and credit expertise to identify attractive investment opportunities.

The fund's strategy focuses on originating and managing a diversified portfolio of senior secured, floating-rate loans to middle-market companies. Management will continue to assess opportunities for capital deployment, manage its existing portfolio for credit quality and yield, and evaluate the effectiveness of its discretionary share repurchase program in light of market conditions and shareholder liquidity needs. Regulatory and tax developments, both domestically and internationally, will also be closely monitored for their potential impact on the fund's operations and financial results. The fund aims to maintain its disciplined investment approach while adapting to market challenges and opportunities.

6. Competitive Position

The private credit market is highly competitive, with many participants, including other business development companies (BDCs), private debt funds, commercial banks, and other financial institutions. This intense competition can challenge the fund's ability to source attractive investment opportunities, potentially impacting pricing and terms.

PGIM Private Credit Fund differentiates itself through its affiliation with Prudential Financial, Inc., which provides strong institutional backing, extensive resources, and a broad network for deal sourcing and due diligence. The fund leverages the expertise of PGIM Investments in credit analysis and portfolio management. Its focus on senior secured, first-lien floating-rate debt to middle-market companies, coupled with diversified industry and geographic exposure, forms a central part of its competitive strategy. The ability to structure bespoke financing solutions and provide consistent capital to borrowers is also a key competitive advantage in this market.