In the ever-evolving landscape of finance, private equity firms have historically been associated with equity investments, taking ownership stakes in companies and driving value through operational improvements and strategic management. However, in recent years, there has been a noticeable shift in the strategies of many private equity firms, as they increasingly turn to private debt as a valuable asset class. This shift is not without reason, and in this blog post, we will explore why private equity firms are embracing private debt and the factors that have led to this transformation. Plus, we’ll share some ways in which AXIS by AIO Logic can help firms automate and optimize their private debt lending process!

Understanding Private Debt

Before delving into why private equity firms are turning to private debt, it’s essential to grasp what private debt entails. Private debt, also known as private credit or direct lending, refers to loans or debt investments made directly in private companies or projects. These investments can take various forms, including senior secured loans, mezzanine debt, or even distressed debt. Unlike publicly traded debt securities, private debt investments are not traded on public markets, which means they are less liquid and typically have longer tenures.

Reasons Behind the Shift

Risk Mitigation

One of the primary drivers behind private equity firms’ increasing interest in private debt is the need for risk mitigation. Traditionally, private equity firms were heavily reliant on equity investments, which can be volatile and subject to economic downturns. Private debt, on the other hand, offers a more predictable income stream through interest payments and the potential for capital preservation, making it an attractive option for risk-averse investors.

Investors can further mitigate their potential risk when using the AI-driven borrower financial health analysis features in AXIS by AIO Logic. This feature allows investors to spread a borrower’s financial data into AXIS, at which time AXIS performs vertical, horizontal, and trend analysis on the data to calculate 42 financial ratios and create a borrower health score. Using this analysis, investors can make an informed decision on whether or not they should extend a loan to the borrower.

Stable Income Streams

Private debt investments typically generate stable and predictable income streams in the form of interest payments. This consistent cash flow can be a valuable source of income for private equity firms, especially during economic downturns when equity investments may not yield returns or may even incur losses. Firms can easily track the income they’re generating from private debt loans using the portfolio performance features in AXIS, which allows users to easily and dynamically obtain portfolio KPIs by specific attribute, portfolio, or time range.

Additionally, private debt investments often come with covenants and protections that enhance the security of the investment. These contractual safeguards can include collateral, priority in repayment, and the ability to influence the borrower’s financial decisions. Such features further reduce the risk associated with private debt and make it an attractive choice for private equity firms seeking dependable income. Using AXIS by AIO Logic, covenants can easily be added to loans during the origination process and are automatically tracked within the loan record.

Yield Enhancement

In today’s low-interest-rate environment, private equity firms are finding it increasingly challenging to achieve attractive returns solely through equity investments. Private debt offers an opportunity for yield enhancement, as the interest rates on private debt investments are typically higher than those on traditional fixed-income securities. For investors who want to customize their loans with a specific type of interest rate structure, AXIS by AIO Logic offers the ability to apply current or PIK, fixed or variable, and changing rates to loans. This ability to uniquely structure interest rates can benefit both investor and borrower by allowing them to suit the loan to their needs.

Access to a Broader Market

By venturing into private debt, private equity firms gain access to a broader market of investment opportunities. While equity investments are limited to companies that are suitable for buyouts or growth equity, private debt investments can be made in a wide range of industries and company sizes. This expanded universe of investment options allows private equity firms to deploy capital more efficiently and seize opportunities that may not align with their traditional equity-focused strategies. With its ability to be adapted to the needs of investors and borrowers of any size, AXIS by AIO Logic can be used to originate, service, and manage loans across a wide range of industries and company sizes.


The shift towards private debt within the private equity industry represents a strategic evolution driven by the need for risk mitigation, stable income, yield enhancement, and access to a broader market. Private equity firms are no longer limited to equity investments and are increasingly recognizing the benefits of incorporating private debt into their portfolios. As the financial landscape continues to evolve, it is likely that this trend will persist, as private equity firms seek to optimize their investment strategies and adapt to changing market conditions. Private debt has firmly established itself as a valuable asset class within the private equity world, and its importance is only expected to grow in the years to come. If your firm is looking to grow your presence in the private debt market, please don’t hesitate to contact us today to discuss how we can help automate and optimize you lending process!