medium · Private Credit & Debt fund-structures-returns-economics

How should an LP likely interpret this metric compared to a peer fund at 5%?

1. The fund may be experiencing credit stress, as PIK is often used to provide relief to cash-constrained borrowers.
2. The fund will have higher DPI because PIK interest is automatically reinvested at par.
3. The fund has lower management fees because PIK interest is excluded from the 'Gross Assets' calculation.
4. The fund is more conservative because PIK interest is higher in the recovery waterfall than cash interest.

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