Private debt typically offers higher yields compared to traditional fixed-income investments, such as government bonds or public corporate debt. This is due to the illiquidity premium and the higher risk associated with lending to private companies. Investors are often compensated with better returns for taking on additional risk.

Adding private debt to a portfolio of public equities and traditional bonds can improve diversification. Private debt is generally less correlated with public markets, meaning that it can provide more stability during periods of market volatility. This is especially useful in managing risk and reducing the overall volatility of a portfolio.

Private debt investments often involve lending to smaller, middle-market companies that may not have access to traditional forms of financing (e.g., bank loans or public markets). These companies might be in growth phases or undergoing restructuring, which can offer investors an opportunity to gain access to unique, potentially lucrative deals that are unavailable in the public market.

Since private debt does not trade on public exchanges, it is less susceptible to the day-to-day fluctuations of stock markets. This lower level of price volatility can make it a more stable investment, particularly for conservative investors seeking more predictable returns.

Many private debt investments involve senior secured loans, which have a higher claim on a company's assets in the event of liquidation compared to equity holders or unsecured creditors. This can provide an added layer of security, potentially reducing the risk of loss compared to other more speculative investments.

Private debt can offer an attractive risk/return profile for those who are able to perform proper due diligence. Investors can assess the creditworthiness of borrowers and negotiate the terms of the debt, including interest rates, covenants, and collateral. These factors can help mitigate risk while still achieving solid returns.

Private debt often generates regular income through interest payments, which can be appealing for income-focused investors. For example, private debt investments can provide quarterly or semi-annual interest payments, offering more frequent income than some other asset classes.

Private debt investments can be highly customized. Lenders have the flexibility to structure deals according to their preferences, which can include covenants, repayment schedules, and other terms that help manage risk and improve the return profile. This flexibility can be a key advantage over standardized public debt instruments.

Some private debt investments, especially floating-rate loans, may be tied to benchmark rates (such as PRIME or SOFR), which means that the interest payments can rise with inflation. This can provide a hedge against inflation, ensuring that the returns on the investment keep pace with rising costs.

Private debt investments can sometimes be structured to take advantage of distressed or special situations, such as restructuring efforts, turnaround opportunities, or financing for distressed companies. These types of investments can offer higher returns, although they also come with higher risk.

Private debt can also provide long-term capital appreciation, particularly in cases where the debt is converted into equity through restructuring or when the borrowing entity successfully grows and increases its value. Some investors may see their private debt investments evolve into equity positions, which could offer significant upside potential.

The private debt market is often less competitive than the public debt market, especially when dealing with smaller or specialized transactions. This can allow skilled investors to find more attractive lending opportunities, as fewer large institutional investors may be involved.