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How to Earn 12%+ With Senior Protection
A masterclass on private credit: compounding with less risk, senior protections in every deal, and my personal playbook to outpace inflation.
Hi ,
I’ve fallen in love with private credit. It started slowly. At first, I was just attracted to the high-yield passive income. But the more time I spent with it, the more capital I kept allocating. I began to really understand the asset class. The reasons behind its surge, the immense level of relative safety it builds into deals compared to equity, and the overlooked power of monthly compounding.
Eventually, I launched our own Private Credit Fund at Build Wealth (by partnering with a best-in-class sponsor and increasing performance for investors). And as I’ve re-underwritten our diversified portfolio of deals, keyed in the monthly performance for our investors, and heard directly from them how blown away they are – something unexpected happened: I realized I had developed a mission.
A mission to help 1,000 investors see what I see—the beauty and power of this asset class.
We are living through a golden age of private credit. Institutions know it. Family offices know it. The only question now is whether individual accredited investors will catch up.
That’s why in this issue, I’ve set aside our usual format to publish an entire masterclass on private credit.
In the Stack Shift, you’ll see why wealth is built not on moonshots but on steady, low-volatility compounding — and how private credit is emerging as the new core of modern portfolios.
In the Playbook, I’ll walk you through how UHNWIs are re-centering around credit, the choices between senior, mezzanine, and hybrid deals, and the strategy I personally use inside BuildFlow I to inflation-proof my principal while also reaping the passive cash flow.
Plus, following our first reader poll last week, we share what you told us about your next big asset capture moves (that was a big hit last week! Thanks to the 150+ participants!) Check out some bonus action steps that just happened to be timely and relevant.
By the end of this issue, you’ll understand why private credit isn’t just an alternative anymore. It’s potentially the most important asset class of the decade.
Let’s dive in,
P.S. Our flagship private credit fund, BuildFlow I, reopens October 1st. Want tax-efficient 10-12+% cash on cash returns? Join the waitlist here: BuildWealth.investnext.com (look for BuildFlow I).
SHIFT YOUR STACK
Compounding, Not Chasing
Private credit isn’t an “alternative” anymore. It’s the new core. Because wealth isn’t built by chasing unicorns—it’s built through compounding, consistency, and control.
The Math That Actually Builds Wealth
Albert Einstein allegedly called compound interest the “eighth wonder of the world.” Whether he did or not, the numbers speak for themselves:
At 7% annual returns, $1M grows to about $2M in 10 years.
At 10%, it’s $2.6M.
At 12%—the kind of steady net yield many private credit funds target—that same $1M becomes $3.1M within a decade.
Stretch to 20 years, and the gap widens dramatically:
7% = $3.9M
10% = $6.7M
12% = $9.6M
That’s millions of dollars of difference—driven not by lottery tickets, but by steady compounding.
The Outlier Illusion
So what about Bitcoin or Facebook? They happened. But they are statistical anomalies.
A landmark Arizona State study, led by researcher Hendrik Bessembinder, found that just 4% of all stocks created 100% of the net wealth in the U.S. market between 1926–2016. The other 96% either barely beat Treasury bills—or lost money outright.
Even the winners were gut-wrenchingly volatile. Facebook’s IPO dropped 50% before it ever became a juggernaut. Bitcoin has suffered multiple 70–80% drawdowns. Most investors sell in those crashes, never realizing the headline gains.
Yes, unicorns create headlines. But they rarely create repeatable fortunes.
Consistency > Speculation
Here’s what actually matters: staying in the game.
DALBAR’s Quantitative Analysis of Investor Behavior has shown for decades that the average equity investor underperforms the S&P 500 by 3–6% annually due to bad timing—panic selling in downturns and chasing hot trades.
The wealthy know the truth: the key to compounding isn’t just high returns. It’s uninterrupted growth. Volatility resets the clock. Consistency keeps the flywheel spinning.
That’s the playbook: consistent returns, low volatility, long horizons.
1. Private Credit Is Surging
Private credit isn’t new. Direct lending, mezzanine financing, bridge loans—they’ve been around for decades. What’s new is the scale of opportunity.
When banks pulled back after the 2008 financial crisis—and even more aggressively after the 2020 pandemic—regulations like Basel III forced them to de-risk balance sheets. That created a massive lending vacuum. Private credit funds stepped in.
👉 For a deep dive, see our team’s full report on bank retrenchment and why it opened the door for private credit.
The result: private credit is now the fastest-growing asset class in the world—already $2.1 trillion AUM in 2025, projected to hit $3.5 trillion by 2028. Institutions are moving fast:
CalPERS recently doubled its target allocation to private debt.
Blackstone closed a record $12B direct lending fund in 2024.
Apollo deployed more than $50B into credit strategies last year alone.
These aren’t fringe moves. They signal a structural shift: private credit is becoming the institutional investors’ new core.
2. Outperforming Traditional Equities
Sophisticated investors call this the golden era of private credit because the returns compete directly with equities—without the same risk profile.
Senior-secured funds often target 10–14% net annual returns, rivaling the equity premium.
Structurally enhanced deals layer in secondary-positioned debt, preferred equity warrants, and upside kickers. These give credit investors equity-like optionality while sitting above common equity in the stack.
For comparison: the S&P 500’s 20-year CAGR (through 2025) was ~8.61% —but delivered with multiple 40–50% drawdowns. Private credit has beaten that, with far less pain. But only quietly, for the ultra rich.
And unlike private equity or real estate, where returns can be lumpy and often back-ended, private credit pays investors consistently month after month. That reliability is what makes it so attractive as a portfolio core.
3. Safer Than Equity in the Capital Stack
Here’s what most people miss: private credit investors are senior to equity in the capital stack.
Think of the stack as a waterfall of who gets paid first:
Senior Secured Debt – first claim on assets, lowest risk.
Mezzanine/Subordinated Debt – higher yields, sometimes with warrants.
Preferred Equity – priority over common.
Common Equity – unlimited upside, but last in line.
Credit investors often have control rights:
First claim on repayment and assets.
Protective covenants that can trigger action long before equity holders can act.
Takeover and forced-sale rights if management fails.
Equity holders like to say they “own the company.” In reality, lenders decide whether the company survives. It’s the closest thing to playing the game with structural advantages that tilt the odds in your favor.
4. Volatility is The Silent Killer of Wealth
Compounding only works if you can stay invested. And volatility is the villain.
Public equities might average ~9–10% long term, but they get there through violent swings—30–50% drawdowns, market corrections, endless whiplash.
The average investor never captures those “averages.” DALBAR shows they bleed 3–6% annually from bad timing.
Private credit? It doesn’t flash red on your screen every day. It delivers steady, contractual, low-volatility returns.
5. The Little Engine That Could
The best private credit funds don’t just deliver annualized yield—they compound it monthly. That’s the “small hinge, big door” that accelerates wealth.
Month after month, cash flow either:
Distributes out—passive income to replace salary or fund lifestyle, or
Reinvests automatically—turning yield into exponential compounding.
It’s not glamorous. But this steady engine—consistent, low-volatility, monthly compounding—is what turns $1M into $3M, then $9M, without the drama of public markets.
6. Tax Efficiency: The Hidden Multiplier
The returns are only half the story. The other half is what you actually keep. Private credit often comes packaged with tax-advantaged structures: accelerated depreciation through equipment-backed lending, interest income offset with fund-level expenses, and in some cases qualified business income (QBI) deductions that can reduce your taxable burden.
In our own BuildFlow I Credit Fund, investors didn’t just earn cash flow or compounding last year — they also received a tax loss of nearly $15,000 for every $100,000 invested. That kind of loss carry-through is what UHNWIs optimize for: not just gross returns, but higher after-tax wealth creation. It’s as if it was in a retirement account… but it wasn’t.
This is why sophisticated investors look beyond the surface IRR. A 12% gross yield in credit can be worth far more on an after-tax basis than the same return in public equities.
7. Diversification + Cash Flow vs. Compounding
The best private credit funds aren’t one-off loans. They’re diversified portfolios across industries, structures, and geographies. That creates resilience.
And they’re flexible:
Cash-flowing funds are perfect for income replacement.
Reinvestment funds let returns compound at mid-teens rates.
That dual playbook—cash flow or compounding—is rare. Private credit offers both.
8. Risks & Realities
No asset class is risk-free, and sophisticated investors know it. Private credit comes with tradeoffs:
Illiquidity: Most funds lock capital for 3–7 years.
Manager quality: Performance varies widely; underwriting discipline matters.
Sector exposure: Concentrated bets can magnify risk.
But here’s the difference: the best funds mitigate these risks through diversification, covenants, and structural protections in the stack. And the track record speaks volumes:
During the 2008 Global Financial Crisis, default rates for private credit averaged ~4%, compared to 13% for U.S. high-yield bonds.
In the 2020 COVID crash, private debt default rates peaked around 2%, while leveraged loans spiked to nearly 8%.
Even through the 2022 rate shock, private credit funds delivered positive high-single-digit returns while public bond indices posted double-digit losses.
That resilience is why institutional investors are comfortable making private credit their core.
The New Core is Here
Pulling this all together:
Safer than equity, with senior claims and protective rights.
Higher yielding than bonds, with optional equity-like upside.
Diversified and resilient.
Compounding steadily, monthly, while avoiding the volatility that kills portfolios.
Stress-tested through downturns, with institutions voting with trillions of dollars.
That’s why private credit is no longer just “an alternative.” It’s the new core asset class for the decade ahead. The wealthy already know it. The question is whether you’ll restructure your own core to match.
FROM OUR SPONSOR
At Build Wealth, we launched BuildFlow I to capture the golden era of private credit in a way that’s safe, flexible, and built for accredited investors like you. I partnered with a sponsor with over a decade operating open-ended debt funds and $65 million paid in investor distributions. I’m also personally the largest investor in our fund.
BuildFlow I is structured with over-collateralized assets, control rights on every deal, low loan-to-value ratios, and a diversified portfolio of real assets and sponsors. It has only a two-year lockup, offers monthly compounding, and gives you the flexibility to toggle between growth and passive cash flow depending on your goals.
It’s also proven to be very tax efficient with a nearly $15k tax loss for every $100k invested (meaning last year investors paid zero taxes on their returns).
The last two quarters it filled early and is currently closed until October 1st. If you’d like to get in line for the next opening, submit a soft commitment in our portal and our Director of IR will reach out to confirm if we’re a fit.
👉 Join the BuildFlow I Waitlist Here
THE PLAYBOOK
Re-Centering Your Wealth Stack on Private Credit
Across Family office surveys, alternatives make up more than half of portfolios with private credit as the #1 asset class targeted for increased allocation in 2025–26. Current exposure is still modest—3–4% today—but one in three family offices plan to grow that slice this year, outpacing private equity and real estate. Reframe the Core
The 60/40 portfolio was built for a different era. Today, family offices are quietly shifting their core to private credit—using it as ballast to steady the ship while equities and real estate swing with the tide.
👉 Audit your portfolio: what % is in private credit? If the answer is zero or still in the low single digits, you’re underweight relative to where UHNW families are moving.
Choose Your Credit Layer
Private credit comes in layers, each with a role:
Senior Secured (8–12%) → first lien on assets, downside safety.
Mezzanine (12–16%) → higher yields, often with equity warrants for upside.
Hybrid / Preferred Equity (15%+) → more risk, but equity-like returns.
Decide what job you want credit to do: protect principal and pay steady income, or drive higher compounded returns with upside optionality.
Cash Flow vs. Compounding: A Founder’s View
Here’s where the strategy gets personal. I’m the single largest investor in our private credit fund, BuildFlow I. Every month, I personally key in the cash flow and compounding results for our investors.
At first, I loved the cash flow—monthly passive income landing on time. But something bothered me: if I cash-flowed for a decade, I’d get my principal back in nominal dollars that were worth less in real terms. (Example: $100,000 in 2015 buys only about $75,000 worth of goods in 2025 after 3% annual inflation.)
The more time I spent in the numbers, the more I realized the hidden advantage of compounding. Compounding early engineers your principal to keep pace with inflation for the entire hold.
BuildFlow I is on track to deliver 12%+ cash-on-cash returns this year (cash-on-cash simply means the annual income yield on invested capital). But if you choose to compound instead of taking distributions, realized returns can jump north of 20% in just two years.
That’s why I personally elected to compound for the first two years, then flip to cash flow. By year three, my principal is effectively inflation-proofed, and every distribution afterward is true real income—not inflated-away dollars. That flexibility—the ability to toggle between compounding for growth and cash flow for lifestyle—is what makes private credit so powerful inside a Wealth Stack.
Diversify & Stress-Test
Even within credit, quality matters. The best funds diversify across dozens of borrowers and industries, and they write covenants that give lenders control when deals go south. That’s how private credit protected capital during 2008, 2020, and the 2022 rate shock cycle. Always ask: How concentrated is this portfolio? How did it perform in past downturns?
The UHNWI Move
This is how sophisticated investors are re-centering their portfolios:
A meaningful allocation to private credit, rising rapidly across family offices and institutions.
A point of view on Senior secured for safety or mezz/hybrid for enhanced returns.
A clear strategy between cash flow and compounding—with flexibility to adjust across life’s seasons.
How to Get Started
What % of my portfolio is currently in private credit?
Do I want my allocation to protect principal (senior), drive growth (mezz/hybrid), or both?
Is my priority income today or compounding for tomorrow?
How diversified are the funds I’m considering—and how did they perform in 2008, 2020, and 2022?
What’s my move this year to close the gap between where I am and where UHNWIs are headed?
POLL RESULTS
Which Asset Will You Stack Next?
Last week, we asked one simple question:
In the next 12 months, which asset are you most likely to increase your allocation to?
The results were revealing.
We saw a nearly even split among the three asset classes in our survey. Investors are seeing the value of all three: Cash-flowing businesses, real assets (like real estate) and credit strategies and how they balance one another. But here’s the stat I keep coming back to:
35% of readers said they’re “just exploring.”
That number tells me nearly one in three of you are still figuring out how to reallocate outside the public markets. Exploration is healthy. Curiosity is essential. And the good news is you have diverse options —across all three classes you’ll be shifting capital into vehicles that can compound consistently and preserve wealth across cycles.
So, here’s the big takeaway:
The next era of wealth building won’t be won by picking the perfect stock. It will belong to those who stack assets that deliver cash flow, appreciation, and resilience—together.
If your curiosity is leading you towards investing in cash-flowing businesses. I have some helpful tips - I’ve been doing this since 2006, wrote the best-selling book on the subject, and founded the elite accelerator in the space, Acquisition Lab. It’s a vetted community with only a 25-30% acceptance rate and the highest member to acquisition ratio by massive amounts.
And if you’re curious about buying your own business, consider applying. We’re also hosting our first ever Buy Then Build Summit next month where we’ll be coming together with searchers and investors to outline the next 5 years of small business acquisitions in what we call Search 2.0.
THE WEALTH REBELLION
Wall Street profits from the volatility of your savings. The headlines want you dreaming of moonshots. But real wealth is built by stacking assets that compound consistently, with lower volatility, year after year.
Private credit is the new core — safer than equity, stronger than bonds, and designed to put you in control. Even CalPERS has doubled its allocation. Institutions know. Family offices know.
Now it’s your move. Take control of your wealth, because no one else will.
"My wealth has come from a combination of living in America, some lucky genes, and compound interest."
Warren Buffett